Buying a home before it is built may appear risky, but off-plan purchasing is back in business thanks to a shortage of finished properties and the homebuyer's preference for planning moves in advance in order to avoid the volatility of market cycles.
'Builders are launching and relaunching schemes that were mothballed in the recession'
Buyers can also take advantage of the current climate by driving a hard bargain to get the price they want in return for their deposit to secure the home. The builder, or more to the point, the builder's bank manager is happy in the knowledge that the development is secure and sold.
And a new industry consumer code is now in place to protect the buyer, especially when it comes to completion dates.
Builders are launching and relaunching schemes - big and boutique - some of which were mothballed during the recession, with homes due for completion up to four years in the future. Volume housebuilders in particular have to be seen to be doing business and have a forward sales programme aimed at placating shareholders.
"Developers are under pressure from banks to meet sales targets; they want certainty and will give discounts to cash buyers who represent the least risk," says Frank Klin of property consultancy Urban Share.
One forecast, not overly optimistic, is that a sustained housing market recovery will be under way by the time of the 2012 Olympics; the economic cycle will be on the up again and mortgages will be more widely available. Buying forward can be a sensible way of getting the house you want ,in the area you want, with the design that suits you. And, of course, if you secure your price, and in four years' time the market has risen, so has the price of the other houses left to sell on that site, and you have made a good buy.
Early buyers can cherry-pick - plot, size, layout, view - and, increasingly, take part in the design changes, ranging from cosmetic touches to structural alterations. At Grange Gardens, Bermondsey, buyers can chat with the developer's architect and adapt designs for a bespoke interior. Another attraction is that developers normally require only 10 per cent of the purchase price as a deposit, with the balance paid on completion.
Enter with caution
Developers are well-versed in impact marketing and can produce very seductive computer images and "fly-throughs" of the finished scheme. "Brochures do not tell the whole story," warns one surveyor.
Buyers do need to do their homework and pace out the size of property. Those who fail to consider thoroughly the plans, the space, specification and the amount of natural light, the closeness of neighbours, the size of the garden, which way it is facing to the sun - do so at their peril.
It is easy to walk around a completed home and decide if it appeals and suits your needs, but grasping the picture before it is built is much harder. Check out houses previously built by your chosen developer for quality and design. Quality developers have well-deserved reputations.
The enthusiasm for pre-sales can be seen across London and the South-East at all prices. At Queen Mary's Place, Roehampton, developer St James has launched a new phase of town houses nine months ahead of schedule, after the previous phase was snapped up in three months during the summer (without the benefit of a show house and a projected 12-month sales programme).
Audley Row, the new phase, will be ready at the end of next year. "Buyers are prepared to wait and plan their lives around it," says managing director Sean Ellis. Prices from £799,950. Call 020 8246 6748.
A few for the future
Grange Gardens, Bermondsey: completions from May next year. Two design themes - "urban" and "luxury" - are offered as standard, but each can be adapted (floor plans, colours and finishes) subject to planning permission. Buyers liaise with the developer's architect, pay a £2,000 deposit and have three weeks to finalise their unique design. There are 63 apartments. Prices from £305,000, penthouses from £725,000. Call 0800 043 2523.
21 Wapping Lane, Wapping: completions in 2012/13. The area's biggest development in more than a decade. Comprising four buildings with "staggered elevations" resembling the rigging and masts of tall ships, it will have 382 homes. Prices from £242,500. Call King Sturge on 020 7715 9700.
Kew Bridge, Kew: completions in 2013. This is a riverside scheme of 164 apartments overlooking the famous Royal Botanic Gardens. Prices from £469,950 to £2.2 million. Call St George on 020 8995 6669.
The Heron, Ropemaker Street, City of London: completion in summer 2013. Sleek skyscraper with 284 luxurious apartments and new premises for the Guildhall School of Music and Drama. Prices from £455,000. Call 0844 544 4210.
Greenwich Creekside: completions in 2010/2011. First phase of a long-awaited "creative village" alongside Deptford Creek - 242 flats in four sleek glass buildings. Well-placed for any Olympics dividend. Prices from £240,000. Call Telford Homes on 020 8694 8186.
The Tower, Vauxhall: completion in 2014. A new circular skyscraper with 223 flats overlooking the Thames. Prices from £700,000. Visits to the plush marketing suite are by appointment only. Call 020 7042 7700.
Putney Square, Putney Hill: completions from June next year. Part of the area's "riverside quarter", the 210 apartments are aimed at singles and couples who want the convenience of the Tube, the buzz of the high street and the tranquillity of surrounding leafy open spaces. One- and two-bedroom flats are priced from £365,000. For information, call 0845 539 0177.
Lancaster House, Notting Hill: completion in spring next year. Office-to-residential conversion - eight boutique apartments, including a duplex penthouse. Prices from £349,950 to £899,995. Call Winkworth on 020 7792 5000 for more information.
New protection helps you buy off-plan
Since April, off-plan buyers have had better protection through an industry consumer code approved by the Office of Fair Trading.
This covers pre- and post-contract matters, from reservation to occupation, and requires developers to provide clear and fair terms and conditions and realistic information on when the home will be finished. For more information, visit consumercodeforhomebuilders.com.
When you agree to buy a home off-plan, you put down a reservation fee and exchange contracts a month later, paying a 10 per cent deposit which goes into the developer's bank account. You then wait for completion.
Reservation fees typically range between £1,000 and £5,000 and are non-refundable, but the amount is deducted from the deposit you have to pay. You lose the deposit if you fail to complete the purchase. This is why you must be confident that you can raise the finance to pay the balance.
Developers rarely commit to a specific completion date. When your home is ready, you are given two weeks' notice to take occupation. This could be earlier or much later than you expected, which can cause problems if you want to synchronise moving in with the sale of your existing home. Sometimes your new home is handed over even though site works are ongoing.
You could ask for a deposit-back guarantee if your home is not ready within a realistic time frame. Normally, developers prevent buyers from selling on after exchange of contracts and before completion, but they may drop this clause if pressed.
Stamp duty, currently one to four per cent depending on price, is payable at completion. A new five per cent tier on £1 million-plus properties applies from April next year.
Virtually all new developments are covered by an NHBC insurance warranty, or equivalent, giving buyers protection against a builder going bankrupt or shoddy workmanship, but check before buying.
Get any special deal or extra you have negotiated with the developer included in the contract. Ask for a statement of estimated service charges and be wary about promised amenities such as a health spa, even car parking. Such extras included at drawing-board stage may be abandoned later on.
Developers are under no obligation to provide extras unless they are stipulated in your contract. Consider employing a surveyor to check the site and specification. Ask to see previous examples of the developer's work. Never pay up-front for an unfinished home. If the property is being custom-built, make sure that staged payments are linked to specific progress in the construction schedule.
One possible bonus is that the property could be worth more on completion than the contract price you agreed (this is why speculators pile into off-plan buying in a rising market). However, the property may be worth less if the market has fallen during the intervening period, meaning that your mortgage offer may be lower than expected.