There are consequences for the buyer, but you can mitigate these
While most off-plan properties are completed on time, occasionally there are delays. These are frustrating for the buyer and may have financial consequences. In this article, you’ll learn what you should do to minimise these consequences, and what options are open to you if the completion is delayed.
Why do off-plan completion dates get delayed?
The first thing to understand is that delays don’t help you or the developer. It’s in both your interests for completion to take place on the date stipulated in your contract. The longer it takes to complete, the longer it is before the developer is paid for the build. It could harm their ability to move onto the next project, and damage their reputation. So, a delay is neither deliberate nor personal.
So, if delays are so much against the developer’s interests, why do they occur? The most common reason is the weather. Poor weather (storms, heavy rains or snowfall, for example) can stop work on development. It could last for weeks. It will also have a knock-on effect on deliveries of goods and services from external suppliers, causing further delay. Of course, external providers may also have their issues, and be unable to deliver on time themselves.
Delays to completion of off-plan property are very rarely the fault of the developer, but due to circumstances are out of their control.
What problems could off-plan delays cause you?
There are several problems that a delay in completion might cause you, depending on whether you are a home buyer or investor. The main ones are:
- Your mortgage offer could expire, and you may need to reapply. Could this mean having to pay another valuation fee?
- You may have planned for the investment to take place, and be reliant on the cash flow you expect from your rental income. What are your options here?
- If you are a homebuyer, you may have already agreed on the sale of your current home. It could mean you are homeless for a period until the off-plan purchase eventually completes. Where do you sleep? You may need to rely on the goodwill of family and friends for a while.
- You could find yourself in a situation of ‘limbo’. You must wait for completion or lose your deposit. If you pull out and the price has fallen, you may be required to make up the shortfall between the developer’s sale price and the price agreed with you.
How to reduce the problems caused by delayed completion
There are some essential actions you should take when investing in off-plan property. Doing the following things should ensure that any effect of delay to completion is minimised:
- You should use a mortgage broker and solicitor. Both should be experienced in the buy-to-let and off-plan markets, and both should be independent of the developer.
- Do due diligence on the developer, and make sure that they have a good track record of delivering on time. It won’t guarantee completion on the agreed date, but timely completion is more likely with a developer who usually delivers on time.
- Ask your solicitor to ensure that there is a ‘longstop date’ in the contract. It will allow you to walk away from the contract without penalty if completion hasn’t taken place by a certain date.
It’s very unlikely that you will have to make a new mortgage application. However, you may need to choose a new mortgage product from the mortgage provider, and this may mean a higher interest rate and perhaps different terms and conditions. A new credit score will be requested, too – so don’t do anything that might affect this before completion.
Usually, a new valuation shouldn’t be required. Your mortgage provider will speak to the original surveyor and ask for confirmation of valuation. However, it may be worth paying a new valuation fee and applying for a mortgage from a different provider – if the interest rate offered is lower and saves you money, paying a new valuation fee may save money in the long run. Your mortgage broker will be able to advise on this and find the best product for you.
It may also be that you could ask for the developer to pay the difference between the original mortgage offer interest payments and the new offer. However, unless there is a contractual obligation for them to do so, it is unlikely they would agree. Your solicitor will advise on this.
What should you do?
A delay in completion shouldn’t make the off-plan deal any less sweet when it is completed. You’ve still bought a great property in an ideal location. One that will appeal to buyers and tenants.
However, it’s wise to plan for a delay. This worst-case scenario planning should ensure that your finances are fit throughout the delay, and you reap the rewards of your investment after completion.
Contact one of the Gladfish team today on +44 207 923 6100, and discover how we’ve helped hundreds of investors achieve their financial goals through off-plan property investment – including putting them in touch with (probably) the best solicitors in the business.
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