There are some key differences if you are buying a new build home, rather than another property. Laura Vanstone, Licenced Conveyancer in Coodes Solicitors’ Residential Property team, sets out eight things you need to know.
1. You may be eligible for the Help to Buy scheme
If you are a first time buyer, you can use the Help to Buy scheme to purchase a new build property. In fact, this scheme is only open to those buying a new build home. It gives you access to a Help to Buy Equity loan of up to 20% (or 40% in London) of the property purchase price. You will need a minimum of 5% of the property price as a deposit. If you are planning to use Help to Buy, make sure you get advice from a specialist conveyancer with experience of the scheme.
2. The developer may give you part exchange on your existing home
Help to Buy is only open to first time buyers but if you have an existing property to sell, you may consider part exchange. Most of the larger developers offer part exchange to potential buyers. This means they buy your property and use the proceeds to partly fund your new build purchase.
There are pros and cons to a part exchange on a new build home. It can make the whole process far simpler and less stressful. If the developer is buying your property, that gives you certainty that it will exchange and complete at the same time. It removes the risk of your buyer falling through as a result of problems in the chain. However, you may get less for your existing home than you would if you were to sell it on the open market.
That’s why it’s important to do your research to find out what your house would be likely to sell for. You should also ensure you understand all the terms of your developer’s part exchange offer.
3. The timescale can be longer for a new build property
When you decide to buy a home on a new development, you may choose a property that is already built. However, you might view a show home and then choose a replica property that is still under construction or perhaps still just on a plan.
If the property is already built, the developer will probably agree to exchange contracts on a set date, which is then unlikely to change.
The developer will exchange on a notice period, which allows for a two-month leeway. The exchange process is likely to include an anticipated legal completion date and a long stop date. This provides the developer with flexibility to allow for any delays in the build. The gap between the completion date and long stop date is generally two months if the roof is on and six months if it is not. If you are buying off plan, which means the house is not yet under construction, the long stop date could be even later.
If your home is being constructed over winter, it is more likely that you will complete nearer the long stop date. This is because poor weather can severely impact on construction progress.
If you are buying a new build property, you will therefore need to be as flexible as possible. It is helpful to have contingency plans for how you will deal with any delays.
4. Your new build home should come with a warranty
Any new build home should come with a warranty to protect you against any defects that come to light after you have moved in.
The warranty your developer offers will vary, depending on which scheme they subscribe to. For example, this could be the National House Building Council (NHBC) guarantee, which provides some cover for ten years, or a similar scheme from LABC, Build-Zone or ICW. Alternatively, if your new home is part of a small development, you may be offered an Architects Certificate, which has a limit of cover for six years.
Your warranty should also cover your deposit. That means that you will not lose your deposit if a major problem comes to light and you decide to pull out of the purchase before you are due to complete.
Whichever warranty comes with your new build property, ensure you understand and are comfortable with it.
5. The developer may offer you an incentive
Larger developers often make their properties more attractive to potential buyers by offering an incentive. These range from paying your Stamp Duty Land Tax to including a particular kitchen or flooring.
It is important to know that if you are using the Help to Buy scheme, you cannot accept an incentive that is worth more than 5% of the property value.
6. You will need to complete a snagging list
Before you complete on your new build purchase, you should have the opportunity to carry out a snagging list. This means viewing the property and noting down anything that needs to be fixed or changed. For example, this could include scratches on the walls, a missing hinge on a door or a light switch that doesn’t work. The site office or the estate agent should take charge of the snagging list on your behalf.
When you are buying a property on a new development, you need to be prepared for areas around your home not being completed for some time. That means you may have to live with heavy machinery working nearby for the first few months in your new home. The snagging list will only cover your individual plot and will not take into account, for example, any roads or walkways that are not finished. However, your solicitor should check that these are covered by any planning documentation and make retentions if appropriate.
7. Be prepared to pay towards your developer’s legal fees
One key difference if you are buying a new build property is that you will need to contribute towards your developer’s legal fees. They will pay their solicitor to draft all the legal documents required for your purchase and you will need to pay what is known as an engrossment fee, which is around £150 plus VAT, towards the cost. Many people are unaware of this when they start out the process of buying a new build property.
As with any property purchase you will also need to fund your own legal costs. Most developers have their preferred solicitors and Coodes is on the panel for a number of developers in the area. It is worth knowing that you can choose to use whichever conveyancer you like and do not have to go with their preferred solicitor. However, if they offer to pay your legal fees, as an incentive, you would need to use one of their panel solicitors for your conveyancing. That solicitor will still be acting for you and not for the developer.
8. You may face paying annual fee to a management company
A hidden cost in buying a new build is the annual fee you may need to pay to a management company. Growing numbers of developers appoint management companies to look after any communal areas between properties. This service charge is to cover the cost of maintaining roads, footpaths and any parks or green spaces on the development.
Management companies can also increase their fees over time. If you are considering a new build, you will need to be prepared for this additional outgoing when you move into your home.
Buying a new build home can be a great option for many people. However, it is important to be prepared for some of the differences and additional costs.
For further information or advice please contact Laura Vanstone in Coodes Solicitors’ Residential Property team on 01409 255907 or email@example.com