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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: joshuapalmer87 on July 23, 2015, 07:11:58 AM

Title: New House Off-plan?
Post by: joshuapalmer87 on July 23, 2015, 07:11:58 AM
First time poster here.

I'm currently nearly 28 years old, married with two kids living in the West of England. My wife and I own (rent from a bank really) a three bed house currently worth around 200k with a 114k mortgage. Our house is fairly small (British houses are so much smaller than American, you wouldn't believe) and are considering having a third child.

A stone's throw from our current house is a new housing development being created which has some 4 bedroom houses planned, although they are not currently for sale and won't be built for another couple of years. We have contacted the regional manager of the development company, as a neighbour of ours managed to discover his email, and said we were interested in buying one of the 4 beds off-plan. We'd expect the houses to go for 330-350k given the shortage of 4 beds in the area. We are planning on making an offer for 275k for the house, with a ceiling of 300k. We would also be eligible to a government Help To Buy loan, which would cover 20% of the house value interest free for 5 years and then be pegged to inflation. In the intervening 2 years, we are planning on paying off our mortgage aggressively, so we should have at least 100k in principal by the time we switch. This would put our mortgage at 140k, but we would be eligible for the lowest possible rates due to the LTV.

We also have a small debt (4.5k) to my mother that we will have paid off by next year as she lent us money to clear the second mortgage on our current house [Interesting story - Our current place was a new build as well, the home builders gave us a 15% stake interest free for 10 years worth 27k. but we negotiated to pay it off after 2 years and as an incentive they knocked it down to 20k if we could pay it off within the calendar year, so we begged, borrowed and sold one of our two cars to do it.] No other debts, apart from student loans. Both my wife and I make the minimum contributions to our retirement pot to cover all the matching of funds our employers offer. Minimal savings currently as we are just at the tail end of my wife's year of maternity leave.

We are currently fairly positively disposed to this idea of buying the new house, but I'm also wary of being hit by reversal in the property market between purchase and actually moving in. Advice and opinions appreciated and further details could be supplied if needed (maybe I've over-shared already!)
Title: Re: New House Off-plan?
Post by: zolotiyeruki on July 23, 2015, 08:32:53 AM
What makes you concerned about a drop in home prices?  Are homes currently priced too high in your area?
Title: Re: New House Off-plan?
Post by: joshuapalmer87 on July 23, 2015, 08:44:01 AM
Possibly, for the country (UK) as a whole salary to house price ratios are well above long run averages (>5x) and the region I live in is pretty representative as a whole. The Help To Buy scheme I mentioned is blowing bubbles in the market too. The time line also means that there is possibility for some sort of economic crisis that would drop prices.

I wouldn't be as worried if we were talking a house that I was buying to live in immediately, but buying off plan typically means a 10% down payment and showing mortgage offer. The offer would most likely expire by the time the house was handed over. If the house value goes down, when we were trying to agree the mortgage at completion we'd end up with a much worse LTV and potentially be hammered in interest rates.