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What are the pros and cons of buying off-plan?

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My partner and I are trying to buy our first home together. The market is red hot and we are facing fierce competition for properties in our area.

In the past six months we have lost out on one property after we were outbid, and on another one after the seller’s onward purchase collapsed.

With property prices rising, we are starting to worry that we will never get on the property ladder if we leave it much longer.

We recently came across a new development being advertised online which looks perfect – and is within our budget. The big problem is that it’s still being built, and it won’t be completed for more than a year.

We are prepared to continue renting until it finishes, but we would like to know whether buying off-plan is a good idea, and whether there are any potential issues we should be aware of.

Instead of a viewing, off-plan buyers will sit down with an agent or developer and look at plans, CGIs, a specification list and a development model to decide whether a home is for them

Instead of a viewing, off-plan buyers will sit down with an agent or developer and look at plans, CGIs, a specification list and a development model to decide whether a home is for them

Ed Magnus of This is Money replies: The UK property market is in the middle of a boom, which means competition is rife.

Read the news headlines and you’ll see ‘soaring house prices’, ‘bidding wars’, ‘property frenzy’, and ‘race for space,’ – it’s enough to make any aspiring homeowner panic that they’re being left behind.

There are more than 700,000 homes currently going through the conveyancing process, according to Rightmove – the biggest sales pipeline in a decade.

On average it is taking four months for a property to go from being under offer to sold, thanks in part to a ‘conveyancing logjam.’

As you have unfortunately discovered, many transactions are being delayed or thwarted by the fact there is a long chain of buyers and sellers all relying on one another to complete on their own purchase.

If any transaction in the chain collapses, everyone is impacted.

Most new builds come with a 10-year warranty that guarantees against structural defects

Most new builds come with a 10-year warranty that guarantees against structural defects

For first-time buyers, one way to avoid the insecurity and anxiety that comes from being stuck in a chain is to buy a new-build property.

But those searching for brand-new homes will find that many of the online property portals are advertising homes that are not even built yet.

The prospect of a blank canvas can be tantalising, which is why some buyers will consider a property that is yet to be completed – and in some cases before construction has even begun.

This is known as buying off-plan, because often buyers will choose their home based on looking at architect’s plans rather than the real thing. 

To explain the pros and cons, we spoke to Rob Bence, founder and chief executive of the forum Property Hub; Paula Higgins, founder and chief executive of the HomeOwners Alliance;  Jonathan Enticknap, director of London residential development at estate agent Hamptons; and David Jubb, director at JLL Residential.

Should a first-time buyer consider buying off-plan?

Jonathan Enticknap replies: For first time buyers who have some flexibility on when they can complete on a purchase, buying off-plan can be a fantastic opportunity. 

This is because of the potential for capital growth – i.e the home increasing in value – throughout the build process.

There is a preconception that buying off-plan is only for the wealthy, or international investors. 

But if the right property, in the right location, at the right price becomes available, why wouldn’t you consider it?

One advantage of buying off-plan is that you might be able to personalise some aspects of your home - but the major drawback is you don't have control over when it will be ready

One advantage of buying off-plan is that you might be able to personalise some aspects of your home – but the major drawback is you don’t have control over when it will be ready 

Rob Bence replies: Most new-build developers now start the sales process before the foundations go in, and it’s not uncommon for first time buyers to opt for a new build property that’s off-plan. 

As with any project though, sometimes timescales can slip. So if you’re a first-time buyer in a hurry to move, it’s worth considering what your options would be, were the build to get delayed for one reason or another.

What are the major risks?

Paula Higgins replies: You can’t be sure what the finished property will look like, so there will always be an element of risk.

If the site is being completed in stages you may find in the short-term you could be living on a building site with no neighbours, lots of noise and dust.

Also, if the build is delayed, you could have to re-apply for your mortgage as most mortgage offers only last for six months.

Rob Bence replies: The developer could go bust before the building is finished and that could mean your deposit is at risk if it is not protected.  

The other major risk is that the property market could also fall during the construction period, meaning you could end up with a lower valuation at completion than the price you agreed and paid a deposit on at the outset.

You could also run into mortgage issues, which might result in you being unable to complete and therefore, forfeiting the deposit you paid when you exchanged contracts.

What are the biggest advantages?

Paula Higgins replies: It might be possible to personalise your home by having a say on the internal layout, fixtures and fittings, as well as where is sits within the development.

Your home will also come with a new-build warranty which can give you greater peace of mind than if you were purchasing an older property.

Once the property is built, the warranty is split into two periods: the defects insurance period, which covers the first two years, and the structural insurance period which covers years three to 10.

Typically, during your first two years in the home, if there are issues with the work the builder has done, such as the heating not working because the pipes are faulty, the developer is obliged to come and fix them.

During the structural insurance period, the developer is typically only responsible for major problems with the structure of the property.

Rob Bence replies: First and foremost, there is no chain, so you won’t need to worry about having your purchase scuppered by somebody else’s transaction falling through.

You can also often negotiate discounts off the purchase price, and negotiate on extra upgrades like flooring, appliances and kitchens.

And once your offer is accepted, you get to lock in at the agreed price.

This means if you purchase a property that’s 12 months off-plan in a rising market and prices go up five per cent, you’ve made a gain without lifting a finger – and with only having put a small deposit down. 

How does an off-plan purchase work?

Rob Bence replies: The process is not too dissimilar to buying a completed property, barring the fact that you can’t physically view it before making your offer.

You’ll be required to pay a reservation fee to secure the property, which is often deducted from the deposit you’ll pay later in the process.

As an off-plan buyer, you will often get to choose some of the materials used in your home

As an off-plan buyer, you will often get to choose some of the materials used in your home

You’ll then instruct a solicitor to go through the usual conveyancing process which includes searches and the checking of contracts.

Once your solicitor is happy, they’ll usually ask you to pay the deposit and exchange contracts. Once the contracts are exchanged, you’re legally committed to purchasing the property.

If the purchase doesn’t go through after this, you’ll lose your deposit – so that’s something to bear in mind.

As the build progresses, you’ll need to arrange your mortgage towards the end of construction, so you have everything ready in time for completion of the property, unless of course you’re a cash buyer.

Once the build is finished, the developer will serve a ‘notice to complete’ which will give you a certain amount of time to complete the purchase – either paying the remainder of the cash or finalising the mortgage.

How can buyers make sure their money is safe?

Jonathan Enticknap replies: If you are buying a property more than 12 months from completion, look for a developer with a strong reputation and track record.

Speak to a mortgage advisor to understand what you can afford before reserving, and do not forget to apply for your mortgage offer six months prior to completion.

Also, don’t forget to factor in stamp duty to any financial calculations you make.

Rob Bence replies: Make sure your deposit is protected ‘in escrow’ or by warranty in case the developer goes bust – your solicitor can review the documentation if you’re not sure.

Warranty providers rarely guarantee a deposit above 10 per cent, so putting down more than this puts you at risk if the developer goes bust.

Research the developer: If they go bust during construction, you could lose your deposit

Research the developer: If they go bust during construction, you could lose your deposit

It’s not uncommon to see developers asking buyers to pay their deposits in stages,  eventually totalling more than 50 per cent of the purchase price. 

Here, the developer is effectively using your money to fund the build, which puts you at significant risk if the scheme is never completed.  

Finally, factor in the potential for delays – if you’re in a rush to move into your new home, you may need a back-up plan.

Paula Higgins replies: It’s so important to do your research and make sure you are going with a quality developer – new build homes are not all the same, so look up previous projects built by the developer. 

If it is a leasehold property, make sure you go through the lease with your conveyancer as soon as possible, paying particular attention to the length of the lease, ground rents and service charges as well as any restrictions.

Finally, at the point of completion, make sure you have a snagging survey done. This will identify defects or problems which need fixing before you move in.

The survey should spot minor issues, from a door that’s misaligned and catching on the carpet, to something more serious that could affect the structure of your home.

What about if purchasing Help to Buy?

David Jubb replies: With Help to Buy you benefit from an interest free equity loan for the first five years but from the start of the sixth year there is an interest charge of 1.75 per annum on your loan, which you will need to pay per month unless you repay.

For those using Help to Buy, you’re allowed to exchange a maximum of nine-months before completion, so if you’re keen on a particular development or purchase, I’d advise trying to buy as close to that limit as possible.

Also, when buying in advance of the building being completed, many developers are now offering incentives with Help to Buy, such as stamp duty paid, so ensure you ask these questions before reserving to ensure you make your purchase more affordable. 

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

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Leaving Cert may end up as traditional exam as ‘school profiling’ ruled out

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The Leaving Cert may end up as a traditional exam this summer with additional choice for students after officials ruled out the use of “school profiling” for a hybrid model.

Taoiseach Micheál Martin and other party leaders were informed by senior officials earlier this week that a hybrid or accredited grades model – based on teachers’ estimates – might need to draw on schools’ historical results in the Junior Cert exams.

This is due to the absence of exam data for about 25 per cent of this year’s Leaving Cert candidates, who did not sit the Junior Cert in 2020 when it was cancelled due to Covid-19 concerns.

This data is regarded as crucial in the standardisation process, which aims to ensure teachers’ estimated grades in different schools are equitably awarded.

However, Government sources said the use of this data has now been ruled out in the event that some form of accredited grades is used because it could prove to be as “too problematic”.

A decision on the format of this year’s Leaving Cert is likely in the next week or so.

The Government had planned to use school profiling in 2020 when Leaving Cert exams were first replaced by a system based on teachers’ estimates.

However, it dropped the plan following opposition claims this could penalise students attending school in disadvantaged areas.

Officials are now understood to be examining whether it is possible to generate accredited grades in a different way that is fair and equitable.

One Government source said it was their understanding that Leaving Cert options have now narrowed. “It seems to be edging towards traditional exams this year, with greater choice for students,” they said.

Disruption

While additional choice in questions in the forthcoming State exams were announced last August, officials have been exploring ways of going further due to the level of Covid-related disruption which has occurred since.

This could see a similar level of choice incorporated into the summer exams as was used last year.

Another Government source said all options were still being considered and nothing had been ruled out. “Things are still at a delicate stage,” they said.

Students are calling for the introduction of a hybrid Leaving Cert on the basis that many have experienced significant disruption to their studies due to the pandemic.

Teachers’ unions are opposed to grading their students for the purposes of the Leaving Cert and say further adjustments to the exams are needed.

It is understood Mr Martin, along with Tánaiste Leo Varadkar and Green Party leader Eamon Ryan, were briefed on potential options for the format of this year’s exam on Monday by Minister for Education Norma Foley and her officials.

The decision to omit school profiling in the 2020 Leaving Cert was at the centre of an legal challenge taken by Belvedere College student Freddie Sherry, who argued that the decision impacted unfairly on his results.

However, the High Court ruled that the Government was fully entitled to make changes to the standardisation model which they considered to be in the public interest.

It found that Mr Sherry had not shown he, or Belvedere, were subject of an unfairness arising from the final approach taken and had “certainly not” established an unfairness that would lead the court to conclude the system was unlawful.


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Voco Hotels debuts in Germany

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IHG Hotels & Resorts, acting in partnership with Hotelite Management, has opened its first voco hotel in Germany; voco Dusseldorf Seestern. Located in the Lorick district of the city, voco Dusseldorf Seestern is a great premium option for those visiting Dusseldorf for business or leisure. The hotel is within walking to distance to the banks of the Rhine river and a short drive from the airport and the city’s main shopping and business districts.

 

With 160 rooms, voco Dusseldorf Seestern, embodies the brand’s design ethos by creating a warm and inviting space with playful and bold decorative touches throughout. The use of bright, warm pops of yellow give voco its distinct identity. All the rooms include signature voco touches, such as high-quality bedding made from 100% recycled materials and eco-friendly large size bathroom amenities from Antipodes, an award-winning plant-based organic skincare company. Guests will also have access to a fully-equipped onsite fitness area including a sauna and steam room, perfect for those looking for a bit of me-time.

 

Offering all-day dinning, the hotel’s ‘Restaurant & Bar 38’ offers a great selection of meals all prepared with the finest organic ingredients. For breakfast, guests will find anything from a continental breakfast to a full English breakfast, as well as an assortment of healthy snacks to choose from. For lunch and dinner, Restaurant 38 offers an a la carte menu filled with local and international dishes. Come evening, Bar 38 is the perfect place to unwind from the day. Whether it be enjoying a cold drink whilst watching live sports on the screens or enjoying a cocktail on the terrace with friends, family, or work colleagues – there is a space for everyone.

 

For business travellers, voco Dusseldorf Seestern has five modern meeting rooms with a capacity of up to 140 participants – all fitted with the latest technology to enable hybrid meeting requests.

 

Oliver Walzer, Cluster General Manager of Hotelite, commented: “We are proud to be the first voco hotel in Germany and are looking forward to inviting our first guests to come and experience what the brand is all about – especially in Dusseldorf, a city where fashion, culture and commerce meet. Whether it be a short city break or a business trip, our onsite hosts will make sure that visitors will have a charming, unstuffy and playful experience that brings out the very best in them.” 

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Detached homes see average values up £60k during the pandemic says Halifax

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The pandemic property boom has been driven by a surge in demand for larger homes, new research has revealed.

The average value of a detached home in Britain has risen at almost twice the rate for flats, according to the data from Halifax and IHS Markit.

Buyers can expect to pay on average £425,177 for a detached property, which is an increase of £60,556 or 17 per cent since March 2020.

Buyers can expect to pay on average £425,177 for a detached property, which is an increase of £60,556 or 17 per cent since the March 2020

Buyers can expect to pay on average £425,177 for a detached property, which is an increase of £60,556 or 17 per cent since the March 2020

It compares to an increase of around 9 per cent for a typical flat during the same period, where values have risen on average £13,325 to an average of £158,992.

At the same time, the average price of a terrace property has risen 15 per cent or £27,715 to £213,798, while semi-detached also rose 15 per cent or £36,841 to £280,090.

HOUSE PRICES BY PROPERTY TYPE
All Houses All Buyers UK Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 15.40% 9.10% 14.90% 15.10% 16.60%
Price Change (since Mar ’20) £33,820 £13,325 £27,715 £36,841 £60,556
Average price Dec 2021 £276,091 £158,992 £213,798 £280,090 £425,177
Source: Halifax/IHS Markit        

The data also highlighted the widening of the gaps between each type of home, with flat owners expected to spend an extra £54,806 to upsize to a typical terrace house, compared to £40,416 in March 2020.

At the same time, those currently in a terrace would need a further £66,292 to own a semi-detached home, compared to £57,166 in March 2020.

Meanwhile, home movers hoping to switch from a semi-detached to a detached property need an additional £145,087, compared to £121,371 in March 2020.

REGIONAL HOUSE PRICE CHANGES BY TYPE
% Change (since Mar ’20) All Flat Terraced Semi-Detached Detached
East of England 13.00% 7.40% 14.20% 14.80% 14.30%
Northern Ireland 14.30% -2.40% 15.20% 16.70% 13.40%
South West 18.40% 10.90% 19.00% 19.50% 20.20%
London 6.40% 0.70% 6.80% 7.60% 12.40%
Scotland 12.10% 9.60% 14.20% 13.70% 16.30%
West Midlands 14.60% 7.10% 12.60% 15.50% 17.40%
East Midlands 15.50% 12.10% 16.50% 17.50% 19.00%
North West 18.20% 13.40% 18.80% 17.00% 21.90%
Wales 21.90% 11.70% 25.10% 21.20% 24.40%
North East 14.40% 14.30% 19.80% 11.80% 15.50%
South East 13.10% 7.40% 13.70% 13.80% 15.40%
Yorkshire 16.50% 4.30% 15.40% 17.00% 18.30%
Source:  Halifax/IHS Markit        

Wales and the North West saw the greatest increase in detached home prices, up 24.4 per cent and 21.9 per cent respectively.

The most expensive detached homes are in London, at an average £910,568. The 12.4 per cent increase is almost double the average of all property types in the capital.

Russell Galley, managing director, Halifax, said: ‘Record numbers of moves have been taking place throughout the pandemic, with the demand for detached homes now greater than for any other property type, meaning the competition for those looking to buy an often larger property is fierce.

‘As employers began to crystalise longer-term plans for home and hybrid working, buyers have been able to consider homes further afield as the need to commute falls away, with properties previously considered too remote now giving families extras like garden rooms and home offices.

This trend means Wales, with its beautiful countryside and lower relative property prices, saw the strongest growth in detached homes over the past two years.’

REGIONAL HOUSE PRICES BY PROPERTY TYPE DURING THE PANDEMIC
East of England All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 13.00% 7.40% 14.20% 14.80% 14.30%
Price Change (since Mar ’20) £36,767 £13,340 £34,669 £45,351 £63,141
Average Price Dec 2021 £319,447 £192,721 £279,087 £352,699 £505,379
Northern Ireland All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 14.30% -2.40% 15.20% 16.70% 13.40%
Price Change (since Mar ’20) £21,448 -£2,327 £14,027 £22,012 £25,600
Average Price Dec 2021 £170,946 £94,922 £106,105 £153,917 £217,226
South West All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 18.40% 10.90% 19.00% 19.50% 20.20%
Price Change (since Mar ’20) £44,773 £17,038 £38,716 £49,973 £76,380
Average Price Dec 2021 £287,774 £173,502 £242,285 £306,171 £454,133
London All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 6.40% 0.70% 6.80% 7.60% 12.40%
Price Change (since Mar ’20) £31,724 £2,657 £33,159 £44,891 £100,525
Average Price Dec 2021 £525,351 £371,744 £520,359 £635,422 £910,568
Scotland All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 12.10% 9.60% 14.20% 13.70% 16.30%
Price Change (since Mar ’20) £20,795 £9,789 £18,433 £23,357 £39,783
Average Price Dec 2021 £192,988 £112,075 £148,224 £193,975 £283,214
West Mids All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 14.60% 7.10% 12.60% 15.50% 17.40%
Price Change (since Mar ’20) £29,778 £8,625 £20,532 £33,265 £57,685
Average Price Dec 2021 £234,263 £129,851 £184,061 £247,881 £389,553
East Midlands All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 15.50% 12.10% 16.50% 17.50% 19.00%
Price Change (since Mar ’20) £30,275 £13,536 £24,346 £33,919 £57,186
Average Price Dec 2021 £225,106 £125,563 £171,686 £227,336 £358,441
North West All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 18.20% 13.40% 18.80% 17.00% 21.90%
Price Change (since Mar ’20) £32,591 £14,070 £24,426 £31,917 £63,229
Average Price Dec 2021 £211,954 £118,979 £154,308 £219,294 £351,887
Wales All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 21.90% 11.70% 25.10% 21.20% 24.40%
Price Change (since Mar ’20) £36,917 £11,570 £30,111 £34,639 £62,688
Average Price Dec 2021 £205,579 £110,318 £149,966 £197,768 £319,492
North East All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 14.40% 14.30% 19.80% 11.80% 15.50%
Price Change (since Mar ’20) £20,162 £11,527 £20,071 £17,666 £37,373
Average Price Dec 2021 £159,694 £92,214 £121,187 £166,876 £278,863
South East All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 13.10% 7.40% 13.70% 13.80% 15.40%
Price Change (since Mar ’20) £43,298 £15,502 £38,704 £49,203 £78,220
Average Price Dec 2021 £374,454 £223,610 £320,944 £404,648 £586,781
Yorkshire All Flat Terraced Semi-Detached Detached
% Change (since Mar ’20) 16.50% 4.30% 15.40% 17.00% 18.30%
Price Change (since Mar ’20) £27,192 £4,708 £19,442 £29,624 £50,192
Average Price Dec 2021 £192,210 £114,535 £146,081 £203,805 £324,581
Source: Halifax/IHS Markit         

North London estate agent Jeremy Leaf said: ’Soaring demand for detached homes is not surprising as we are seeing buyers prepared to stretch themselves to purchase properties which they regard as for the longer term, rather than settling for smaller houses or flats. 

These buyers are often using money saved during lockdown by not going on holiday or other spending, to contribute towards their deposit. They are also taking advantage of continuing low interest rates even though the threat of higher repayments and inflation is looming.

‘Detached homes have long been the pinnacle in terms of what people aim for when buying property. They are popular because they offer flexibility, privacy, control and independence, which isn’t always the case with semi-detached or terraced properties where there is an element of shared space or boundaries, increasing the risk of conflict.

‘Price growth has been strongest in Wales because often affordability is greater in those markets in the first place. We have noticed the drift from the centre of towns and cities to the suburbs, country and coastal areas as people get more accustomed to hybrid working and not having to spend as much time in the centre. They are looking for higher-quality outside space and the ability to work comfortably from home.’

Separate research by Coutts found that demand has also been high for luxury leafy lodgings in the capital.

It said that sales for super prime homes worth £10million or more jumped from 56 in 2020 to 106 in 2021.

Peter Flavel, of Coutts, said: ‘For many investors these prime and super prime properties provide the opportunity to put funds into assets that offer the space they need as hybrid living continues to influence lifestyle choices.’

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