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Getting a Mortgage for Buying an Off -Plan Property

Looking for information about buying a property off-plan in the UK? Get the right advice about this here.

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 5th November 2019 *

Buying a house off-plan 

Many people come to us with questions about how to buy a house off-plan. 

The process of getting a mortgage for an off-plan property can be overwhelming and some lenders can be reluctant to lend, especially if certain materials are used throughout the build. 

The good news is that we work with specialists who have extensive knowledge about buying off-plan, including the process, risks, tips and the lenders who are most likely to approve you. 

To give you all the information you need, we’ve created this buying off-plan guide including:

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What does buying off-plan mean?

Buying off-plan means that you agree to purchase a property before it has been built. This can be daunting as you will need to rely on the developer’s floor plans, price lists and other related property documents to make your decision. 

Usually, buying an off-plan property involves signing a contract and paying a deposit to secure the plot. The deposit size can range between developers but often it can be up to 5% and higher.

What are the pros of buying off the plan?

There are many benefits to buying a house off-plan. Firstly, you’ll be the first and only homeowner to have lived in the property, meaning that you have a completely blank canvas to work with. 

Low decoration costs

Often new build homes are decorated in neutral, soft tones, so if you don’t want to decorate, you don’t have to. This keeps the costs of repairs and redecoration to a minimal for at least the first few years.

However, many developers do provide a choice of fixtures and fittings, (sometimes at an additional cost) which can allow you to tailor the property to your taste. 

Guarantees and insurances 

New properties can also come with guarantees, such as the  National House Building Council’s (NHBC) 10-year warranty. This can provide peace of mind as, if anything were to go wrong in terms of the buildings structure, you would be provided with consumer protection.

Some developers also provide insurance for new homes which can be very helpful as some insurance companies are reluctant to insure new builds

What are the risks of buying a new home off-plan? 

As with any property purchase, there may be risks that you should consider before committing to an off-plan mortgage, such as... 

There could be financial risks

Despite your off-plan property being new, you should be aware that it will normally depreciate in value once you have moved in. This can be frustrating if you decide to move in the near future as you may not get your money back. 

Because of this, it can be helpful to compare the new build home you are looking at with similar properties that are being re-sold online. Look at the value of the properties and compare it with the price you have paid for yours. 

This will give you a good idea about what you can expect to sell your property for in the future.

It may have a covenant

Additionally, some new build properties are built on land with a covenants which can be frustrating for homeowners as often these can be restrictive. 

In fact, some covenants can restrict homeowners from building an extension or even adding a satellite dish to the side of the house. 

It may be a leasehold 

Before buying a new build property off-plan, always check with the developer if the property is freehold or leasehold

If the property is leasehold, you may be shocked to discover that despite buying the property, you are still only leasing the plot from the freeholder to use for a number of years. Although long term, most leases ranged between 99-120 years. 

Among other things, this can affect the resale value of the property as some buyers may be put off because of the restrictive nature of leasehold properties. 

Therefore, before you proceed to buy the property off-plan, ask the developer about what restrictions are included as well as which charges apply as often leaseholds come with ground rents and maintenance charges that can increase overtime. 

Buying off the plan tips

If you are thinking about buying a property off-plan, it could be beneficial to consider the below tips to avoid the potential pitfalls of buying a house off-plan.

  • Research the developer online and read forums to see what people are saying.
  • Visit the developer’s other sites to see the quality of their work 
  • Negotiate with the developers. At the end of their financial year, or when there are only a few properties left to be sold you may be able to get a ‘buying off-plan discount.’

Questions to ask when buying property off-plan

  • How much deposit do you require?
  • Will my home be similar to the one in the brochure?
  • How long is the build time and when can I move in?
  • Are there any incentives or buying off-plan discounts?

Mortgage lenders for off-plan buildings

Some lenders can be more cautious about lending to borrowers for off-plan mortgages in the UK as new build properties including new build flats, are notoriously harder to resell. 

For a lender, this creates a risk. If you default on your mortgage payments, they may have to repossess and resell to make their money back for the loan. If the property doesn’t sell or sells for a lot less than the loan, the lender loses money.

Because of this, you may find that some lenders have strict affordability criteria which can reduce the options available to you.

However, there are specialist mortgage lenders that are happy to lend for an off-plan, new build property in the UK.

Make an enquiry and we’ll refer you to one of the experts for the right advice

How will the property type affect a mortgage for an off-plan house?

Lenders can also be wary when it comes to loaning money for mortgages on non-standard construction builds because this too, can affect the property’s saleability. 

This is because certain property types can be expensive to maintain or repair as specialist craftsmanship and materials may be needed. This can often put future buyers off.

Examples of buildings that can cause issues with some lenders include:

For some homeowners, keeping up with their mortgage repayments as well as the maintenance of a building can prove too much, and in some cases, they fall into arrears. 

This poses a risk to lenders as they may then have to repossess, and essentially inherit the cost to repair and then sell the property. 

Fortunately, there are lenders that are more likely to consider a wide range of property types. For more information on this see our non-standard property section.

Alternatively, make an enquiry and we’ll put you in touch with an advisor. 

Getting a mortgage for an off-plan buy to let

Because buying off-plan often comes with developer discounts, they can be a great opportunity for investors looking to buy to let.

New build and off-plan buy-to-let mortgages are likely to require a specialist lender since buying new builds and off-plan properties come with have higher associated risks.  

When you buy off-plan you're investing in a vision rather than a completed property and some lenders will have an aversion to this due to the possibility of a property decreasing in value before it's even been built and potential delays and complications during the build itself.

Due to the higher perceived risk, lenders will generally require a higher deposit for off-plan buy-to-let mortgages. Normally you would need at least 15% deposit for a buy-to-let mortgage, but off-plan some lenders may require as much as 35% deposit.

The expert brokers we work with know the lenders who deal with off-plan buy-to-let mortgages. Make an enquiry for a free, no obligation chat to see what mortgage rates you could get.

FAQs

Do you pay Stamp Duty on an off the plan property?

Yes, at the normal rate - the amount payable is based on the purchase price, not the market value.

When do you pay the deposit for an off the plan property?

Once you have been approved for a mortgage in principle and have received a mortgage valuation for your off the plan home, you will need to pay the developer a deposit to secure the plot and proceed with the mortgage. The deposit size is usually 5% or more of the property’s value, although this can vary between developers. 

Can you buy an off the plan property with Shared Ownership?

Potentially, yes, as there are some developers who offer Shared Ownership mortgages to buyers who are considering buying a new home off-plan.

Shared ownership would allow you as the buyer to purchase a share of the property, whilst the developer would have ownership of the remaining share. 

This can be a more affordable option for many first time buyers as only a smaller mortgage would need to be taken out. 

For more information see our guide to Shared Ownership mortgages. Alternatively, we can put you in touch with an expert.

What is an off-plan assignment mortgage?

It is possible for an investor to buy off-plan and then resell the contract for a profit. This is when you would need an off-plan assignment mortgage.

An off-plan assignment mortgage allows you to buy an off-plan contract prior to the completion of the property.

This is good for an investor because, selling the off-plan property ahead of the build being completed means that, because they haven't actually bought the property, they avoid both stamp duty and land registry charges.

Are there any tax benefits to buying off-plan?

As mentioned above, a savvy investor can avoid paying stamp duty if they buy off-plan and then sell the contract ahead of the property being completed.

This isn’t a good reason to buy off-plan unless you’re confident you can buy and then resell ahead of a completion date. The person who has the contract once the off-plan property has been completed and the keys exchange hands is the person liable for paying the stamp duty.

How can a mortgage advisor help?

The process of buying a new build off-plan can be complicated if you have never experienced it before and using one of the expert mortgage advisors we work with, can help you to avoid any errors that can delay your application. Here’s how an advisor can help you buy an off-plan property:

Smoothing the mortgage process

A mortgage broker can help guide you through the off-plan mortgage process from start to end. They can take the time to research the market and help you find the best off-plan mortgage lenders.

Managing your paperwork 

Once you have found a lender who has agreed to provide you with a mortgage, you may find that there are time restraints and you may have only 28 days to exchange. This can be a challenge for some mortgage lenders, who struggle to complete applications within that time frame. 

This is where a mortgage advisor can be invaluable. They can prepare all of the paperwork ahead of time and submit the application on your behalf as soon as possible. 

This can help move things along so the lender has 28 days to complete the application.

Negotiating

The advisors we work with have extensive experience with mortgages for off-plan properties and therefore know which developers offer the best incentives. 

As well as this, they can also negotiate the best rates for you with off-plan mortgage lenders to save you money and ensure the rate and terms offered to you are fair.

Calculating your deposit 

A mortgage advisor can also look through your finances and help you calculate how much you need for a deposit when buying off-plan with any given lender. 

A broker can also compare the incentives with each developer and calculate which one is cheaper and how much you could save through buying a house off-plan.

Flipping

A good broker will discuss ‘flipping’ with you. This is the potential profit that you could make if the value of the property you have just bought off-plan, rises before completion.

Buying off-plan in London

Often investors will consider buying off-plan properties in London, with the hope of selling it quickly after completion to make a profit. 

In areas that are highly populated and where properties are in high demand, it could be easier to ‘flip’, however this is certainly not always the case.

Because of this, ‘flipping’ on an off-plan property is a risky investment as there is no guarantee that the value of the property will increase and of course, it could decrease. 

Speak to an expert about buying off-plan today

If you have questions about buying off-plan with Taylor Wimpey, Redrow or any other developer or just want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry online

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 5th November 2019
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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.