New Property - Exchange of Contracts

[mickyme1]

New here, please bear with me :).

Me and my DH are First-time buyers, renting at the moment. We reserved our new home (it's a plot, the completion date is July/Aug) in early Feb, applied for mortgage etc which went through all ok, HTB approved pre lockdown. Our conveyancer is suggesting (no pressure) that we shall exchange the contracts now as the ATE (authority to exchange) from HTB will expire soon.

I am a bit nervous now after reading all the housing market collapsing stories. Not sure what to do. What would you suggest? Highly unlikely the builder would be reducing the price anytime soon.

Has anyone had any similar experiences? Thanks.

a new build will drop in value anyway, like a new car.

if you are there for the long haul, do it. If you are planning a couple of years and then cash in, not going to work.

Thanks mencken!

Yes looking for long term. I am just worried if the value would drop significantly due to the downturn of the economy..

Any other suggestions as well?

I'd hold fire. I used to sell new build and in the last property crash(and I do think we will see house prices being hit especially new builds) a 4 bed property on the development I worked on lost value by £50k compared to an identical one sold a few months previously.
Developers will no doubt have a glut of finished properties (known as stock plots) that they will want to shift and there will be deals available

@justaweeone May I ask what was the total value of the new build with 50k price drop? We are going to exchange in few weeks, and thinking to ask for a discount. We are buying a 1.2m garden flat in zone 2. Our seller is buying a new build house, assuming at a similar price or slightly more expensive. We would rather to get a discount which they can also get from their builder. So win win situation, not builder of course

@mickyme1 - in a similar position to you (new build), but a bit further along in the process.

Since the lockdown I've been reading around and the predictions about house prices falling is worrying me a bit too.

IMO you are in a good position because you have not exchanged yet. So, you could still negotiate a bit with the builders. It is unlikely that they will budge on the sale price (how much a house sold for would be available on Zoopla etc. and influence their other sales). However, the builders may throw in some extra incentives that you would otherwise have to pay for anyway (things like appliances, flooring, wardrobes, turf etc). So, if I were you I would try and negotiate there (assuming you still want the home). Whether or not the builder will negotiate on the sale price may depend on things like how popular and established the new development is. Lots of factors to weigh up.

At the end of the day, it is a very personal decision and only you (and your family) know the full facts/circumstances. Location matters a lot - some areas are going to be more resilient than others in an uncertain housing market. People will still want to be near good schools and good transport links etc. If it is a long-term home and you can afford to stay there in the event of a recession/depression, then it might be worthwhile seeing it through. The new home should be an asset in the long run, but do the pros/cons list to weigh it all up.

@KatyRyan - I read your other posts too. Something that occurred to me is that if your sellers have already exchanged on their new build (sometimes new build exchanges happen much earlier in the process) then it is unlikely that they can re-negotiate with the builders. Maybe worth finding out how far along the process they are?

@KatyRyan
Gosh it was in 2008 so my memory is hazy but I know it was over £400k
Developers will always try and give you incentives first as it the cost is minimal
However moving forward when you come to sell they wouldn't make a massive difference hence always better to hold out for a reduction in price

@ChocoTrio really?! Would they do so? How much deposit could they pay?
It sounds a bit risky, especially their flat only went to market and accepted our offer in early Feb

@KatyRyan - Yeah I think it is quite standard that new build homes are exchanged within 28 days of being reserved. Your sellers' situation might be different, so it is worth finding out.

Yeah - it does feel risky, especially if it is off-plan. However, there is something to be said about watching a new home grow and having the opportunity to put your own stamp on it as it grows (e.g. choosing colours, adding other bits and bobs, like extra plug sockets, that would be harder and/or more expensive to add once a home is already built etc.). That unique experience can feel valuable.

FYI:

"Exchange deadlines: Most house builders will set a deadline for exchange of Contracts, usually 28 days from the date that you reserve the plot. By this date, you will need to have your offer of mortgage. If you have a property to sell, your purchaser (and the rest of the chain below) will also need to be ready to exchange by the date specified." (Source: BLB Solicitors)

Regarding deposit:
"28 days to exchange - even before the property is built! This is what is called 'buying off plan' and essentially you are buying based on what the developer is suggesting the property is going to look like when they finish. You'll need to pay a reservation deposit to secure your offer and then after this you'll have 28 days to complete the legal work. On exchange you'll pay 10% of the purchase price of the property to the seller (or 5% if you're buying via the Help to Buy Equity Loan scheme) and from that point on you'll be legally bound to purchase the property (read Can I Pull Out After Exchange of Contracts)." (Source: SAM Conveyancing)

If it's a long term move I would just move. You can't put your life on hold, we don't know how this will play out, if this is a 5 year plus house (with a 5 year fix) it won't matter if the market rocks a bit over the next couple of years. If it's a step on the ladder with the hope to upgrade within 5 years then yes maybe hold off, I would just think if worst case scenario the house goes into negative equity, how long could you comfortably live there? Could you have a family there for example.

As for new builds losing value, that very much depends on the area, new builds where we are (not particularly prime location tbh!) hold their value and increase well, the locations/estates themselves become desirable. I've been watching house prices like a hawk for the last 5 years and the new builds built in the last 10 years on popular estates have done better than a lot of the second hand market. Though I can't make any predictions on the future of course!

@User202004 - That is rather reassuring - thanks! I agree, it depends on location and the development's reputation.

Initially, I was not considering new builds at all. However, many of the 2nd hand homes I looked at in the area needed a lot of work doing to them and that can sometimes become a money pit and headache in the long term. It's swings and roundabouts...

@mickyme1 - another point to consider is the long term costs of running and maintaining a home too. New builds generally tend to be cheaper to heat because they are well insulated and you shouldn't have many maintenance issues for quite some time (there is also the 10 year builders warranty etc.).

Thanks for your inputs @ChocoTrio @User202004 @KatyRyan. Much appreciated. I am holding fire for the time being before we exchange the contracts. Need a bit of confidence I suppose, would wait until the construction resumes, obviously when its all safe for the contractors to return back to work as per Gov guidelines.

@ChocoTrio
My below typing will be not nice to the seller. But at least, I want to understand all the cards I hold now

If as you suggested, our seller already paid 10% deposit for their new build, which ready to move in now. Does it mean they will most likely loss the 10% if we pull out.
So if we ask for 10% off, they will loss 10% no matter if they accept it or not. Did I understand correctly?

@KatyRyan - if they have exchanged they will be locked into the new contract, yes. In theory, that would give you some leverage in negotiations. Then again, you don't know their position for certain unless you check etc.

Asking for 10% off a £1.2 million flat is a lot (I think that's what you said in a previous thread, but maybe I got mixed up?). Your sellers would be exploring their options seriously if you proposed a 10% reduction.

Are you aware of the sellers' financial position? They may not be as stuck or desperate as you think, even if they are committed to the new build. For example, they have the option of changing the flat you're looking at into a Buy-To-Let and renting it out (it sounds like prime location and lenders might use the potential rental income into calculations for LTV etc.).

Also, if it is a new build they are buying - then builders can sometimes offer part exchange where they will buy the previous property in exchange for the new one. Although, I don't know how that will work if they have already exchanged contracts...

Sounds like you are in a good position to negotiate as you should have some leverage with the cards you hold. However, the sellers may still have other options than just needing to sell to you - e.g. they may have BTL, part exchange and other options available to them too. So, weigh it all up.

If they accept you 10% reduction that obviously that would be a massive bonus for you!

@ChocoTrio thank you so much! These are very useful! We will note these all down. Luckily, we emotionally don't see it as our dream home. Our dream home is around 2m, which we cannot afford in next 10 year . So the one we are buying, is just the one does the job, if it doesn't work, we will just pull out I guess.
Don't think they can easily rent it out though, the flat require quite a bit of work. If a family can afford 3k+ renting per month (the rate in that area), they won't be happy to live in such flat. At least not us.

@KatyRyan - if it's not your dream home then maybe reconsider. It's a balancing act, because if it increases in value in the next few years it may go quite a way towards your 2m house goal etc. It's uncertain, I guess.

Since it is a flat - does that mean it is a leasehold property? Or does it have a share of a freehold? If it's leasehold then will that mean you'll also have to factor in ground rent and service charge too?

As for Buy-To-Let, I don't know because people rent all sorts of places for loads of reasons. It might not be suitable for families, but it might suit professional adults or something. The rental market in London is usually pretty robust, especially central.