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Archive for September, 2015

New- Build Properties – Should you pay an ‘up-front’ reservation fee?

Tuesday, September 8th, 2015

When buying a new-build property you will be asked to pay an up-front reservation fee to secure your reservation of the property. Once you have paid the reservation fee the property should be taken off the market and not offered to any other potential buyers.

In a thriving property market with several buyers vying for each property it can be comforting to know that you have secured the property you want. Be warned though that when buying a new-build you will be pressured from day one, to pay the reservation fee and then to move very quickly to exchange of contracts.

There are a few pitfalls to watch out for when paying an up-front reservation fee:-

    • Make sure that the reservation fee is refundable if you are unable to proceed. Some developers’ reservations forms state that the reservation fee is ‘non-refundable’.
    • Ask who is going to hold the reservation fee? Ideally it should be held by the developer’s solicitor in their client account. Should the developer then go bankrupt or fail to complete the development at least you will be able to get your money back.
    • Before reserving a new-build property, particularly if buying off-plan, ask for confirmation in writing of the estimated date of physical completion. Remember if the build is delayed due to shortage of manpower or materials your reservation fee and exchange deposit are held by the developer.
    • Before paying any reservation fee make sure that your finances are in place and that, if you need a mortgage, you can get one. Some types of property development are not favoured by mortgage lenders. These include flats above shops/offices, high rise blocks of flats and certain types of construction.
    • Ask whether the property is to be covered by a build guarantee such as NHBC – without this you will find it difficult to obtain a mortgage. Some developers offer build insurance via Zurich as an alternative to the NHBC guarantee.
    • Once your reservation fee has been paid you will be given a deadline to exchange contracts – this is usually 28 days. This means that you will need to have your mortgage and finances in place, you will need to have appointed your solicitor and all pre-contract checks and searches will need to take place within this time frame. If you fail to meet the deadline the reservation can be cancelled and the property sold elsewhere.
    • Ensure that your solicitor is notified that this is a new-build purchase and check that they have the capacity to move quickly. Note some solicitors charge a premium for new-build property because of the complexity and the time scales involved.
    • Buyers of new-build properties are protected by the Consumer Code for Home Builders 2010 which governs developers and provides mitigation service should you have a complaint against a property developer.

For a free and without obligation conveyancing quote for your new-build purchase please contact Sharon Buthlay on 01638 576478 or e mail Sharon@cms-uk.co.uk.