Why investors purchase off-plan property
When buying an off-plan property, you are essentially purchasing off a developer prior to the construction. This requires patience in waiting for the development to be completed but can see you reap the rewards.
As we touched on last week, UK homebuilders are currently thriving with over 170,000 new homes completed this year. This figure hasn’t been so high since 2008. However, newly built, affordable homes were highlighted in the news again this week as it was revealed that none of the 200,000 homes pledged in 2014 have been completed by the government.
In this article, we will touch on some of the key benefits of purchasing off-plan property as well as some of the draw backs. We will also identify a form of funding an off-plan purchase that many investors use.
Why buy property off-plan?
One of the main reasons for purchasing an off-plan property is to benefit from the discounted rate and speculating on value increasing once the development is completed. Although there has been a recent dampening of the housing market due to Brexit uncertainty, valuations statistically increase over time.
‘Flipping’ a property purchased off-plan is popular with investors as they look to sell once the development has been completed. Whilst the potential for profiting from an off-plan property exists, one should be mindful that any increase in value is not set in stone.
Another benefit of buying off-plan is sometimes having an input into the design and fixtures of the property. However, if your unit is one of the first to be built, there maybe construction work in the area. You should also be aware that delays can occur with new build property developments.
Overcoming difficulties securing funding on off-plan investments
Traditionally, mainstream lenders tend not to provide funding for off-plan investments. The main reason for this is that mortgage offers from banks can often expire before the property is set to be completed. But investors can turn to bridging loans as an ideal source of funding.
Bridging loans are ideal for off-plan purchases for many reasons, but especially the speed of delivery and the length of term involved. Terms can be agreed within hours of an initial enquiry and funds in place in a matter of days. This is important with off-plan properties for two reasons.
Firstly, having all the funds in place when purchasing can often give you room for negotiation with developers. In addition to this, failure to have the funds in place upon completion can also lead to losing your initial deposit.
Secondly, the length of terms for bridging loans averages at 12 months. This is ideal for those wishing to ‘flip’ the investment once completed. There are no early exit fees involved, making this an even more attractive option.
How we helped a client secure their off-plan property
We were contacted by a potential client that had agreed to purchase an investment property off plan from a developer. The project was nearly finished, and they were issued a Notice to Complete and required the funds within 10 days.
The notice placed the client under pressure as not only would they be losing their investment property, but they would also forfeit their £50,000 deposit.
After receiving the enquiry, we were able to make a decision right away and offer a loan the same day. We were then able to handle the valuation, legal requirements and provide the £480,000 needed two days before the deadline.
The short-term bridging loan provided had no exit fee or early redemption penalty. This allowed the client to secure the BTL mortgage they wanted without the stress or worry they may have had.
Secure your off-plan property today
Bridging loans may be an ideal option for investors looking to buy off-plan. If you would like to learn more about their advantages, contact MT Finance on 0203 051 2331 today. Alternatively, you can leave your details on this contact form and get a call back from a dedicated team member.