First Time Buyer magazine spoke to Emma Newby, Head of New Build Conveyancing at Beaumont Legal, to get the low down on the newbuild conveyancing process
For first time buyers, purchasing a brand-new home direct from a developer – is often the dream. With no structural survey results to stress about, no chain to contend with and a sparkling new place to move in to – you’d be forgiven for thinking that the legal process is bound to be plain sailing. However, with strict exchange deadlines and often no set completion date, those opting to buy new should be aware of how the legal process differs, and what steps they can take in advance to make sure the move goes through without a hitch
You’ve acted for thousands of buyers – helping them purchase brand new homes. Should buyers select a conveyancer who specialises in newbuild conveyancing?
Due to the technical nature of newbuild purchase transactions, it is vital that purchasers choose a conveyancer who specialises in this area and is comfortable dealing with such complicated matters, quickly and efficiently, to ensure that any exchange deadlines are met without compromising on the legal service provided.
It is also essential that your conveyancer is used to dealing with the various schemes and incentives that are available to first time buyers – such as Help to Buy.
With the property being brand new – why are searches and legal enquiries still necessary?
The purchase of a home is likely to be the biggest financial commitment in your lifetime, so it is vital that you know as much about the property as possible before signing contracts. You want to be sure that the property you are about to buy is worth your investment!
There are so many things that we as your conveyancers need to check, to make sure the developer is constructing the property legally and as they should.
We look at things such as planning permission and building regulations, and we’ll make sure there is a new home warranty scheme (such as NHBC) – ensuring you’re protected against future structural issues. We also ensure that you’re provided with the necessary rights to gain access to and from your home, and we’ll clarify who’ll be responsible for the roads and sewers.
If the property is an apartment, or a leasehold house, we’ll need to check the lease and make you aware of any conditions that may affect what you can and can’t do in the property. For example, pets may not be allowed, or you may not be able to let, or even sub-let, your property.
We will also provide you with key information about any management company, confirm who is responsible for maintaining the building and communal areas which form part of the development, and will detail any costs that you may be expected to pay – such as ground rent and service charges, or other estate charges as well as any possible contributions towards buildings insurance.
In most circumstances, your conveyancer will also be acting on behalf of your mortgage lender, who will also want to ensure that all this information is checked.
How long will the conveyancing process take and how long after reservation should buyers expect to be able to collect their keys?
The process can be very quick, or can take several months, depending on whether the property is fully constructed or not. Most developers will require you to proceed to exchange of contracts within 28 days of either reserving the property, or your conveyancer receiving the contract papers.
If the apartment/ house is ready to move in to (i.e. ready and structurally finished) – you may be required to exchange and complete within 28 days.
In popular markets such as London, plots will often be reserved well in advance of the property being structurally complete, but the developer will still require a quick exchange of contracts, with completion taking place ‘on-notice’ – sometimes several months later. Once the property is finished and signed off by the New Home Warranty Provider, we’ll receive written notice that the property is ready and completion must take place within a specified time from receipt of the notice (normally 10 working days later). We’ll then need to prepare for completion by requesting mortgage funds, carrying out final searches and obtaining evidence that the property has been signed off by the New Home Warranty Provider. At this point, you should also be invited by the developer to carry out a final inspection of the property (known as a home demo tour) – allowing you the opportunity to flag up any snagging issues with the builder and seek assurances that they will deal with these. Every developer will have their own process for dealing with snagging, so it is important that you speak to the developer on this point to find out what theirs will be.
Developers should always try to give you an accurate estimated timeframe for completion when you reserve – but remember that scheduled works can be delayed due to outside factors, such as poor weather conditions, reliance on third parties, such as contractors and third party companies, and connection to services.
Most larger developers also subscribe to the Consumer Codes for House Builders which ensures that all homebuyers are treated fairly and know what service levels they can expect to receive from the developer of their property. You can find more information on their website.
When will I need to provide my mortgage offer?
Most mortgage offers expire within three or six months, so if you are buying off-plan, the property may not be ready within that timeframe. You may need to get an extension, or even a new offer, before the property is complete. You should always speak to your mortgage advisor about this, to ensure that, once you have exchanged, you will still have a valid mortgage offer which you can use to complete your purchase.
If you know that the property isn’t going to be ready for more than six months past the point that your offer is first issued, we’ll advise you on the risks of exchanging contracts without having a valid mortgage offer in place. For example, what would happen if your employment status changed between exchange and completion – affecting your ability to get a mortgage? You need to be comfortable with the idea of exchanging contracts in advance of completion taking place and consider the risks of ensuring you will have the funding in place to complete your purchase as, once contracts have been exchanged, you are legally bound to purchase the property.
How much should I expect to pay for the conveyancing?
Legal costs can vary from firm to firm and factors such as the property tenure (freehold or leasehold) and purchase price, or even if you are purchasing under the Help to Buy Scheme, will all have an impact on how much you can expect to pay. However, you also need to budget and you don’t want to be faced with spiralling costs at a time when every penny counts. Do your homework in advance and select a conveyancing firm who is able to provide you with not only a quality legal service, but also a fixed legal fee, along with an accurate estimate of other costs you may incur – such as stamp duty, registration fees and search costs.
Although newbuild properties are less likely to fall through, you should also check whether the conveyancing company offers a ‘no completion, no fee’ service, where you won’t be expected to pay the conveyancers legal fees if you do decide not to go ahead with the purchase.
When will I be expected to pay?
Understanding the process and how much you will be expected to pay and, more importantly, when, can really help you get your finances in order and keep the stress levels to a minimum!
Once you have paid a reservation fee to the builder to secure your plot, you will need to instruct your conveyancer and you will usually be required to make an initial payment of around £300 to cover the cost of outgoing expenses, such as searches and ID Checks.
The next payment will be requested before exchange of contracts (normally within 28 days) and this is when your deposit is required, to ensure that contracts are legally binding. This is normally a minimum of 10% of the total purchase price, including any reservation fee you have paid, but sometimes smaller deposits are accepted, for example, if you are purchasing with Help to Buy. If you do not think you will be able to provide a full 10% deposit at the point of exchange (e.g. because you are still saving your deposit up), speak to your conveyancer to discuss options.
Before completion, you will receive a completion statement from your conveyancer, detailing the final amount due from you, and this will include the remaining balance for the property, plus the outstanding legal fees and costs, such as registration and stamp duty fees, and any other outstanding amounts which you owe to the developer, such as extras. This will need to be transferred into your conveyancer’s account as cleared funds no later than the day before completion.
Remember, if the property is structurally complete at the time you reserve, exchange and completion may happen at the same time, or just a few days apart and, if this is the case, the full funds may be requested all at once.
On the day of completion, your conveyancer will have already requested the funds from your mortgage lender and will transfer the full balance to the developer’s solicitor. Once they, in turn, have received the money, keys will be released by the site and you will officially be the owner of a brand new home!
Whilst you enjoy settling in, your conveyancer will take care of the registration formalities and ensure your stamp duty is paid to HMRC and the new Home Warranty is put in place.
Get your conveyancing quotes now, so that you can calculate how much you’ll need to pay and work out if stamp duty is applicable. For a discounted, no obligation quote from Beaumont Legal, contact Emma Newby at NewBuild@beaumont-legal.co.uk, quoting the reference FTB2017.