Do I have to complete an off-plan property purchase?

How foreign investors can reduce risks when investing in UK off-plan property

One of the most common questions we’re asked by foreign investors who are considering buying off-plan property in the UK is if they must complete the purchase after exchanging contracts. In this article, you’ll learn about your financial obligations when you invest in off-plan property, and the risk you run if you fail to complete the investment.

The difference between a reservation, deposit, and completion

When you decide to buy off-plan, the likelihood is that the first payment you make will be a reservation fee. It signals your intent to purchase, and the developer or sales agent will take the unit off the market. The reservation fee is often less than £5,000.

When you pay the reservation fee, you will be given a timetable of when to pay the deposit – usually around 10% of the purchase price. It will be paid through your solicitor. When you pay the deposit, you exchange contracts.

If you don’t pay the deposit by the deadline agreed, then contracts will not be exchanged, and the developer or sales agent may sell the off-plan property to another party.

Of course, you may decide that you don’t want to go ahead with the purchase after paying the reservation fee. Before paying the deposit and exchanging contracts, you can change your mind and pull out of the deal. However, you may forfeit your reservation fee.

Once you have exchanged contracts, the full and final payment (say, 90% of the purchase price) is due upon completion. Sometimes the developer may request another 10% of the remaining amount to be paid a few months before completion.

For many foreign investors, this method of payment is a shock. In many countries, payment for off-plan property takes place in stages as the property is being built. At completion, there is often only 20% or 30% left to pay. It’s important that you understand the payment schedule before exchanging contracts (something you should ask your solicitor to clarify).

So, here’s the easy answer to the question “Must I complete an off-plan purchase once I have paid the deposit?”: Yes. Once contracts are exchanged, and you have paid your deposit, there is no pulling out of the deal. You are bound by law to complete the deal.

Can you sell before completion?

Selling your off-plan property before completion is a recognised property investment strategy. However, it’s much rarer in the UK than elsewhere.

Now, you can sell an off-plan property before completion, but only if it is allowed in the contract. However, you should also consider tax, selling commissions, and legal fees before doing so. We wouldn’t recommend selling before you complete, but you should always enquire if you can do so and if there are any circumstances in which an early sale would be permitted.

So, what happens if you do pull out?

If you do pull out of the purchase, you will have broken a legally binding contract. The developer can sue you for damages. And they will win. There are two common outcomes:

  1. If the developer sells the unit below the price you had agreed, it is most likely that you will have to pay the difference, as well as court costs for both parties. You may also forfeit your deposit.
  2. If the developer sells the unit above the price agreed, you might not be sued. However, you will forfeit your deposit.

Be prepared for the risks with financial awareness

There are many reasons why you might not want to complete an off-plan property investment. These include:

  • Events such as loss of job, a marriage split, or illness.
  • You may also find that mortgage rules have changed, and you now find it difficult to get the mortgage that you thought wouldn’t be a problem.
  • The property market has gone sour, and the property is worth less than your agreed purchase price.

Strategies you can use to reduce these risks include:

  • Negotiating as large a discount to price as possible.
  • Using a mortgage product with a longer-dated offer period.
  • Using a mortgage broker experienced in off-plan property.
  • Ensuring that your solicitor makes certain that the off-plan property contract works in your favour just as much as to the developer’s advantage.
  • Most importantly, get in touch with Gladfish. Let them take the strain while you make the gain!

Investing in off-plan property could be the most lucrative investment you ever make. But you must be prepared for all eventualities. To discover how we have helped hundreds of foreign investors profit in the UK property market, contact one of the Gladfish team today on +44 207 923 6100. You could soon be making a life-changing investment in off-plan property.

Live with passion

Brett Alegre-Wood

Brett Alegre-Wood
January 11, 2018

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