Strategies that help you avoid a completion nightmare
Life can get in the way of even the best-laid plans. One of the risks of investing in off-plan property is that your life changes in some way and you can’t complete on the property. In this article, you’ll discover that there are, in fact, several things you can do to either prepare for or deal with life’s unexpected events.
What happens if you can’t complete an off-plan property investment?
The agreement to buy an off-plan property is a legally binding contract. You are locked into completion on the date stated, though a delay on the developer’s part would delay completion. Should you find yourself unable to complete, the developer could (and probably will) retain your deposit.
The property will be put on the market to sell. If the price achieved is less than the price agreed by you, you will be liable to pay the difference. The developer could also include their costs because of your inability to complete. It could cost tens of thousands of pounds. But it shouldn’t if you take precautions to avoid default.
What could stop you from completing an off-plan property investment?
To prepare for all eventualities, you must first consider what they might be. Though each person is unique and may have unique issues facing them that they haven’t yet considered, some general life issues that might affect anyone of us at any time.
Health issues that may affect your ability to complete
Health issues may be your first consideration. You could become ill or have an accident that stops you from working. If you were relying on your income to either obtain finance for or subsidise your off-plan investment, such an event could scupper your plans.
Sticking with health issues, and a little more drastic, what might happen if you or your partner dies? You should consider the impact on your ability (and perhaps desire) to invest and maintain the investment in the future. If investing jointly and either of you dies, it is most likely that the contract would still require you to complete. This may come at a time when your mind isn’t in the right place, and if it is the breadwinner that dies, at a time when it appears impossible to complete.
Financial issues that may affect your ability to complete
Financial issues could be varied, but the most obvious include loss of work. It may be the loss of a major contract if you are self-employed, or being made redundant from work. These events may be out of your control, and might only be temporary. But if they come at the wrong time, they could harm your ability to raise finance (a mortgage) and therefore stop you from investing.
Other financial considerations that are out of your control include new mortgage rules, and the property is valued at lower than when you first decided to invest. Such events may require you to increase the amount of deposit you pay to secure financing.
Other life issues that may affect your ability to pay
The length of time between signing the contract to buy and completion could be two to three years. A lot can happen in that time and plenty that you haven’t bargained for.
You may get divorced, or married, have an extra child or two, or see children that you thought had flown the nest return and reclaim their old bedroom. It may be that friends or family need your financial help. Or your employer wants you to move abroad. The list of life events that could happen is almost endless.
All should be considered before committing to invest in off-plan property.
Prepare to ensure completion on your off-plan property investment
No situation that can be planned for, providing you expect the unexpected. Here are just a few things you can do to ensure you can complete on an off-plan investment:
- Insure your earnings with income insurance, which pays out should you suffer an illness or accident that prevents you from working.
- If investing with a partner, take a joint life insurance policy to the amount outstanding on the purchase price of the property.
- Keep money back, and save into an emergency or contingency fund.
- When negotiating your purchase price, obtain as large a discount as possible. It will provide a cushion should the property’s value erode in a downward market.
You should also ensure that you remain in touch with the developer and your mortgage broker. In fact, a good buy-to-let mortgage broker will ensure that they keep you updated on any mortgage rule change that may affect you: the sooner you are alerted to these, the easier it will be to take the steps needed to ensure you get the mortgage you need.
What if you haven’t prepared for the worst, and the completion date is looming?
There may be events that happen which you hadn’t considered. Or perhaps you were too complacent and thought ‘it will never happen to me’. Even when in this type of situation, there may still be options open to you. For example:
- Could you borrow funds from family and friends?
- Do you own other investments which you may be able to sell to raise the funds you need?
- Could you remortgage your home to raise the extra deposit the bank is requesting?
- Do you own other underperforming properties in your portfolio which you could sell?
Could you sell your off-plan property before completion?
Providing your contract doesn’t have a restrictive clause in it, you may be able to sell the property to another party. You may have to write two contracts to do so – one between you and the developer, and one between you and the buyer. There will be costs that must be considered should you choose this route – for example agents’ fees, solicitors’ fees, and stamp duty should it be owed.
Could the developer help?
Developers want to sell their properties. If you do run into difficulties in completing, you should keep the developer informed. They may be able to help, and very often it serves them better to do so. For example, if you have a short-term financial issue, such as problems with your mortgage provider because their rules have changed, the developer may give you more time to arrange financing.
Whatever your situation and circumstances, you should act sooner rather than later. There are not many issues that our property consultants haven’t heard of or helped with. Contact one of the Gladfish team today on +44 207 923 6100, and discover how hard we work to ensure your off-plan property investment is successful.
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