The Risks Of Buying Properties Off Plan!

Shilpa Mathuradas

Buying Property Off Plan

The Daily Mail reported that 300 families a week have to move into shoddy newly built homes. Not all will have been purchased off-plan, but many will have been.

Buying off plan means committing to purchasing a property before it’s finished and whilst it is being built. Buyers commit to purchasing the property based on plans, designs, and specifications provided by the developer. The actual building may not start or be completed for several months or years.

Typically, buyers pay a deposit upfront, with the remaining balance due upon completion of the property. Some developers may offer payment plans during the construction phase.

Buyers should ensure that they have a thorough understanding of the contract and the terms of the sale and make sure that the deposit is protected and can be recovered if the developer fails to complete the project or fails to fulfil their obligations.

The advantages of buying off plan

There are many advantages of buying new build properties, such as it being cheaper and a developer taking into account your wishes in terms of colour schemes, layout and fixtures. There is also the prospect of the property increasing in value while it is being built. However, there are also several risks:

Risks of buying in a new development

Buying off plan is not for the faint-hearted, especially when you have to wait a number of years for completion, but you have exchanged contracts and pay over a substantial sum in terms of deposit.

What happens if property developer goes bust?

The biggest risk is the developer going bust. The contract to purchase the property will include a term which requires the developer, usually the seller, to build the property and then complete the purchase by handing it over to the buyer.

If the developer becomes insolvent there is a possibility that the company’s liquidator will try to sell the contract to another developer to enable the build to be finished and for the contractual obligations to be met. The process will inevitably cause a delay which might entitle a purchaser to revoke the contract and get back the deposit. Still, where the deposit has been released to fund the development, there is little chance that the deposit will be returned.

In circumstances where the development is to be sold, purchasers may acquire a lien over the net proceeds of sale if their contract was protected with the registration of a unilateral notice at the Land Registry. However, often developers will have registered charges which will have priority over the purchaser’s interests.

A number of buyers are likely in the same situation, and it might be worthwhile for them all to attempt to club forces as they may have a louder voice, but if there is no money, then this may be a futile exercise.

New Home Warranty

The developer may well have contracted to provide a new home warranty, and it is worth investigating the terms of that policy and whether it offers protection and covers the deposit. However, these warranties can often limit the deposit protection provided, and purchasers paying large deposits may find they are not fully protected.

Breach of Contract

It may be that the developer does not finish the project before the longstop date expires, leaving them in breach of contract. However, pursuing a developer for breach of contract is not a simple matter and is timely and expensive. There is certainly no guarantee of success with the added risk that the developer may become insolvent during the proceedings.

Consumer Code for Home Builders

It may be simpler for a purchaser to check if it has any rights under the Consumer Code for Home Builders. It requires the developer seller to provide reliable and realistic information about when the construction of the property may be finished, the date of completion and the date of handover of the property.  If the developer is a participating developer under the code, a low-cost dispute resolution scheme is available. However, the maximum value of the combined awareness available under the Code is £15,000 inclusive of VAT. Therefore, the scheme is unsuitable for most homebuyers because their deposit is likely more than this. The adjudicator may issue a performance award (that is, where the participating developer has to do something). I am not sure the adjudicator can order the developer to deliver the build where there are more serious issues.

The Role of the Government

With the government’s focus being on building homes and the increased availability of off-plan purchases, surely it is time for the issues of developers going insolvent or simply not completing projects to be addressed so as not to leave purchasers who have already invested in their proposed purchase without redress. It is in the government’s interest to encourage such developments and for the public to feel safe investing in them.

Steps to take when buying an off-plan property

Buying off-plan can still be the right decision, provided you go in with your eyes open and follow a careful process. The steps below set out what to do if you are considering an off-plan purchase.
In April 2025 the BBC reported a case in which two first-time buyers lost their £21,000 deposit on an off-plan purchase.

Check how much you can borrow

Before buying any property, whether it is a new build or not, you should contact potential lenders and determine how much you can borrow. Keep in mind that lenders often offer smaller loans for new builds and some don’t lend at all, therefore it is a good idea to speak to a specialist new build broker.

Considerations to make when buying off-plan

When buying off-plan you will have important factors to consider. First, research the developer thoroughly, as you are purchasing a property before seeing the final product. If the construction is partially completed, talk to any neighbors who have already moved in to learn about their experiences with the buying process.

Get your mortgage offer in principle

When you have chosen your preferred lender, get a mortgage offer in principle. This is a document which sets out how much the lender is prepared to lend you.

Find the right property

Once you have a mortgage offer in principle, you can then find the right property for you and your family and negotiate the price. Remember, it is good for developers to be seen as selling properties and therefore there may be a bargain to be done.

Get the right conveyancer

Make sure you get the right legal help to assist you in buying the property and ideally from someone experienced in buying off-plan properties as these present different challenges compared to the average purchase. Your solicitor will carry out anti-money laundering checks as part of the process, so have your identity documents ready. Also, get this legal help as early as possible, and remember that you don’t have to proceed with the firm of lawyers that the developer or the agent suggests. Don’t feel pressured into hiring someone.

Reserve an off-plan property

You will be required to reserve an off-plan property and usually pay a reservation fee of up to £3,000. This fee is usually non refundable, therefore it’s essential to get clear plans and specifications so you understand exactly what you are reserving.

Mortgage for an off-plan purchase

When buying off-plan, you typically have 28 days to exchange contracts. Those who have applied for mortgages before will know this is a short timeframe for the lender to assess all requirements and complete the necessary valuation. This is why it’s crucial to work with a specialist mortgage broker who can secure the right product for you. Mortgage offers often expire within six months and if you are unable to get the offer extended, then it is likely you will lose your deposit. It is therefore important that your conveyancer negotiates a long stop date which expires before your mortgage does and allows you to walk away without losing your deposit.

Completion of the purchase

Completion usually takes place on notice. This means that once the property is finished the developer will notify the buyer to complete the purchase, typically within 10 working days. The conveyancer will immediately have to arrange the drawdown of funds. Once completed there are often snagging items which you are required to notify the developer of within a specified period. Make sure you are aware of this period and notify the developer accordingly.

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