Buying a New Home – the conveyancing process explained.

By Caroline Hume

Partner – Head of Residential Property

14 August 2024

Article Insights

With the Labour Government’s recent promise of increasing the number of new homes to be built, now is an opportune time to consider the benefits of purchasing a new-build property directly from developers.

There are many advantages to buying a new property directly from the developer. As the first owner, you’ll be able to put your unique stamp on it—a blank canvas for your own style and personality. You can choose every aspect of your kitchen and bathrooms, which will be clean, sparkling, and unused. Developers often include kitchen appliances and offer other financial incentives, making a new home purchase an attractive option for first-time buyers. In recent years, the “low-maintenance” benefits of buying new have also attracted an increasing number of downsizers.

When looking for a new-build property, it’s important to take the time to research the developer, check their reviews and ratings, and ensure they are signed up to the New Homes Quality Code (NHQC). Visit the NHQB site.

Visit multiple developments in your area so that you can get a feel for build quality and specifications, check out the show homes, and chat with the site office team about your requirements. Even if they don’t currently have the size or type of home you are looking for, they might have your dream home in their next release. Once you have decided on a house style and developer, ask them which of their other sites have completed versions so you can go and see for yourself exactly how the home looks when completed.

Unlike buying a second-hand property, you will usually be purchasing a new-build property during the course of its construction, sometimes before any construction has started at all. This is known as purchasing “off-plan.” Please take the time to check the plot plan, estate plan, and service plans for the development carefully, as it’s crucial that you understand exactly what you are agreeing to buy.

Once you have decided on your home, you will sign a “reservation agreement.” This agreement will contain essential information related to the purchase. Please check this carefully. It will provide details of the incentives that have been agreed upon, the anticipated legal completion date, the current build stage, the warranty provider, and any fees you will be required to pay—such as a contribution to the developer’s solicitors’ costs, often referred to as an “engrossment or document fee.”

The reservation agreement will include an expiration date, which is the date by which you are expected to exchange contracts (and therefore fully legally commit to the purchase). Under the NHQC provisions, this date will be 42 days after the reservation agreement was signed. Developers will often agree to extend the period if they are satisfied that you have a good reason for the extension and can see that progress has been made during the initial period.

When entering into the reservation agreement, you will be asked to pay a reservation fee. This is effectively a holding deposit and would typically be between £500 and £2,000. This fee is deducted from the total price you pay to the developer on completion and, therefore, forms part of the purchase price. If you are unable to exchange contracts during the reservation period set out in the reservation agreement, this deposit can be forfeited. In reality, the fee is usually refunded to the customer if the reservation is cancelled.

Deadlines are an integral part of purchasing a new-build property, and it is important to understand what will be expected of you. A developer will expect you to fully instruct your solicitor and mortgage broker within 5 days of signing the reservation agreement. This will include providing identification and proof of source of funds documentation to them and making initial payments on account. Once you have instructed your advisors, the developers will expect regular progress updates from them on the legal and financial aspects of the transaction. If you are not going to be in a position to exchange contracts within the initial reservation agreement period, the more information the developer has access to during this period, the more likely they are to agree to an extension.

Exchange of contracts will only take place once you (and your legal advisor) are satisfied with the legal title and documentation, your inquiries are satisfied, proof of source of funds compliance has been completed, search results are satisfactory, and (if you require it) an unconditional mortgage offer is in place. At the point of exchange, the developer will confirm whether completion is to take place “on notice” or with a “fixed date.” If the latter, you will know on the date of exchange the exact date on which completion will take place. This will usually mean that the property is build complete, and importantly, that the warranty provider has signed it off as being so and issued a “cover note.” You will pay a deposit on exchange, usually 10% of the agreed purchase price, less the initial reservation fee paid.

However, if the property is still under construction, you will exchange contracts with completion to be “on notice.” The developer will, immediately prior to exchange, confirm to you and your legal advisor the “anticipated legal completion” date, which is the date they reasonably believe the property will be ready for you to move into. They will also confirm the exact build stage of the property and whether the property is weatherproof. If the property is weatherproof at exchange, then in accordance with the NHQC, a 2-month termination date will apply, and if it is not weatherproof, then a 6-month termination date will apply. This is a date taken from the anticipated legal completion date, after which, should the property still not be build complete, you, as the purchaser, could choose to terminate the contract and receive a full refund of your reservation fee and the deposit paid on exchange. Your legal advisor will discuss these arrangements with you prior to exchange.

Prior to completion, but after the warranty provider has inspected the property and issued the cover note, the developer will invite you to attend a “new home demonstration.” At this meeting, you will finally see your new home as you imagined it and will also be given a run-through of how everything operates. The site office team will discuss with you their after-sales process in relation to any “snagging items.” Snagging is a term used to describe items in the property that require attention after completion—for example, the landscaping of garden areas, which may be weather or season-dependent. The majority of developers have a robust snagging process in place and will provide information on this throughout the process.

In summary, buying a new-build property offers many benefits, but it requires careful research, understanding of key deadlines, and close attention to detail throughout the process to ensure a successful and smooth purchase. If you are about to buy  a new-build property, our experienced conveyancers are on hand to help, please contact our team here.

Disclaimer: General Information Provided Only
Please note that the contents of this article are intended solely for general information purposes and should not be considered as legal advice. We cannot be held responsible for any loss resulting from actions or inactions taken based on this article.