The 5% Mortgage Guarantee Scheme
Conveyancing Executive Connor Walker takes a look at the new government backed guarantee scheme and how it will work in practice.Read more
When buying a new build property, you will often be buying ‘off-plan’, the completion date when contracts are exchanged may not be fixed, and you will need to know what warranties are in place. In addition, the developer might impose a short exchange deadline, which must be met to ensure you do not lose your reservation fee and any other incentives such as contribution towards Stamp Duty Land Tax.
At the first stage of the new build buying process, you will be asked to pay a reservation fee (usually between £500-£1,000) and complete a reservation form which sets out the agreed price, any incentives offered by the developer and the date by which the contracts must be exchanged. Most developers will stipulate a 28-day exchange deadline from the day you place your reservation and are in receipt of the draft contract papers.
Once you have paid your reservation fee, you will need to instruct a conveyancing solicitor who will undertake the relevant searches on the property on your behalf.
These searches are intended to give you a detailed insight of the investment that you are making and to ensure that everything is as it should be. The searches include checking that appropriate planning permission has been obtained and that the property is fully compliant with it, as well as highlighting any restrictive covenants that could prevent you from making alterations to the property in the future. These can include major changes such as building an extension, but could also specify that prior consent is required before installing an exterior satellite dish, which is usually subject to a fee.
In addition, the searches will reveal arrangements for the wider development, and ensure that plans have been made for the surrounding roads and sewers to be ‘adopted’ and maintained by the local authority once the development is complete.
It is also important to check that the developer is a member of the National House Building Council (NHBC) or another suitable warranty provider. This will provide you with a ten-year warranty against certain specified structural defects. Issues with the property within the first two years will be corrected by the developer and any problems arising in the following eight years will be rectified by NHBC or the relevant provider. The terms of the warranty should be carefully checked to see what they cover, as well as identifying any excess payable in the event of a claim.
Once all plans are approved, enquiries have been dealt with, and satisfactory search results have been received, you will be asked to pay your deposit so that contracts can be exchanged. The deposit will vary depending on the property as well as whether or not you take advantage of schemes such as Help to Buy, but it is typically 10% of the purchase price.
The date for completion will not be fixed, but ‘on notice’ and the developer’s solicitor will let your solicitor know 10 days before actual completion will take place. This can create a period of uncertainty, as the date for completion can vary by months at a time due to unforeseeable circumstances such as inclement weather. Checking the developer’s anticipated timeframe from the exchange of contracts to completion with your solicitor is advised, for example, if the property is not weatherproof at the point of exchange, you may be waiting longer to complete.
For insurance purposes, the developer will continue to be responsible for the building until the day of completion unlike existing build purchases, where the new owners typically require insurance for the property upon exchange of the contracts.
The documentation provided during the purchase of a new build property can often be confusing. However, whether you are a first-time buyer with the benefits of an ISA, or you have a second mortgage through a help-to-buy scheme, Flint Bishop’s conveyancing team will provide you with advice and information in a straightforward, clear and precise manner. We will keep you updated at every stage of the process and ensure your moving experience is as stress-free as possible.
For more information on the process involved in buying a new build home, please call us on 01332 226 119 or fill in the form below.
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