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I am buying a new build. What can I do to protect myself in the current market?
When buying a new build, whether for an investment property or your family home, it pays to be cautious. As the housing market cools, it has become obvious that some building companies have bitten off more than they can chew and cannot fulfil their duties as to the costs, timeframes or builds promised to their home buyers.
We’re going to give you seven tips and tricks that you need to protect yourself if you’re buying a new build in the current market.
Watch instead: I I am buying a new build. What can I do to protect myself in the current market?
1. Consult with a Property Lawyer or Conveyancer
Consulting with a lawyer or conveyancer is paramount when it comes to buying a new build or any home. Why? As they’re on your team! A lawyer provides due diligence, can negotiate on your behalf, and will go through all sale and purchase agreements, contract documentation and more to ensure that what you’re agreeing to is fair to you.
2. Do your homework on the developer
Always check your developers track record. Are they a well-known brand? How long have they been in business for? While bigger brands may be a bit more expensive, they have more weight in the market and can have more guarantees. If you’re developer isn’t too well known, don’t despair, ask your lawyer for their opinion and advice, see what public records are available online for that company, ask the developer questions and look into some impartial reviews so you can make an informed decision.
3. Buying a turnkey? Make sure that your deposit is held in a solicitors account.
A turnkey build is when you pay a deposit up front for your new build, let’s say 10%, and then you pay the other 90% of the build upon completion. Make sure that you ask that the deposit is held in a solicitor’s account instead of going straight to the developer. The developer is going to need some of your deposit to start the build, but they may not need the full 10%. Keeping your deposit in a solicitor’s account ensures there’s some kind of rationale behind why they’re pulling the money out.
4. Buying a turnkey? Ensure the rest your loan is sorted before CCC is issued.
Let’s say you’ve paid your 10% deposit and your new house is in its final stages of completion. A lot of developers will say that as soon as the code of compliance (CCC) is issued, you have only five days to get them the balance i.e. the other 90% of the build cost. Ensure that during the final stages of the build, you are talking with your bank and lawyers to get the rest of your home loan issued. But five days is still a crunch and it can cause a lot of stress for every party involved, so ask your lawyer to amend this to ten working days.
5. Progress payments? Ensure your whole deposit is going towards the build.
Progress payments are when you pay an initial deposit upfront and then you pay in stages as the build progresses. The bank will issue you the money as the build reaches certain stages over time so make sure that the initial deposit that you’re paying on your new build is fair and that the developer is using the initial deposit towards the build, not trying to generate a profit upfront.
6. Progress payments? Make sure the work is done before you make any payments.
If you are getting money from the bank for your new build, they are going to make sure that they have seen receipts that the work has been done before they pay the developer. But if you’re putting any of your own money into the build and your builder is asking you to make payments to them, then you need to make sure that you have seen that the work has been done before you shell out any cash.
7. Make sure you fully understand your sunset clause.
A sunset clause allows a contract to be cancelled after a certain date. This is commonly used for new builds. If the build is not completed by a certain date, there may be an option for either the developer or the purchaser to cancel the contract. Understanding sunset clauses is really important and can be extremely costly if you don’t pay attention to this. Ask your lawyer whether or not you have a sunset clause in your contract, and if you do, get them to explain its implications i.e. does it truly protect both parties, can it be taken out etc.
If you’re looking to purchase a new build and are needing some financial or general advice, book in a chat with us. Our Mortgage Brokers can assess your entire situation and get you peace of mind on whether a new build is right for you.
Keep in mind this article is providing general information and not individual financial advice.
