Brokers slam new build developers’ ‘dodgy practice’

"These unethical developers should be named and shamed"

Brokers slam new build developers’ ‘dodgy practice’

A number of brokers are alarmed by the practice of some new build property developers who increasingly put pressure on prospective buyers to exchange contracts within a 28-day period, yet with no completion date being set.

“This kind of dodgy practice should be made illegal,” Graham Cox, founder of Bristol-based broker, said. “It’s made even more egregious by the fact many new build homes are sold to inexperienced first-time buyers.”

Cox pointed out that while an exchange many months ahead of completion is great news for the property developer, it potentially leaves the buyer on the hook for thousands of pounds.

“They could find themselves with a new, much more expensive mortgage offer, which ends up being unaffordable,” he explained. “The developer, of course, pockets the agreed non-completion fee. These unethical developers should be named and shamed.”

Mike Staton, director of Mansfield-based Staton Mortgages, noted that, quite often, the applicant’s mortgage offer expires putting them in a highly precarious position and potentially at risk of losing the property and the deposit made at exchange.

“This is especially the case now when some mortgage offers that were issued nine months ago at rates as low as 1.39% are having to be reapplied for at significantly higher rates, stretching affordability to the limit,” Staton stated. “This is completely unfair, and the builders should be held accountable.”

“The new build market and mortgage market are now deeply out of sync and it’s causing chaos,” Scott Taylor-Barr, of Shropshire-based broker Carl Summers Financial Services, remarked. “We’re seeing build times that are far longer than many mortgage lenders are now able to hold applications and offers open for, which is a problem when builders are still insisting on exchange 28 days after reservation, even when they don’t think they will have the property built for nearly another 12 months.”

Lewis Shaw, founder of Mansfield-based Shaw Financial Services, agreed that this scheme by new build developers is causing countless issues as it forces people into exchanging contracts within four weeks “before putting as much as a shovel in the ground.”

“To be able to exchange, buyers must have a valid mortgage offer, which is typically valid for six months,” Shaw said. “Problems arise when developers keep pushing back completion dates due to hold-ups in the build, often meaning that mortgage offers expire. This has the knock-on effect that, as brokers, we either have to extend the offer or, due to mortgage product end dates, pick an entirely new deal.

“A year ago, that wouldn’t have made much difference. However, now that rates are shooting up mortgage offers that were at sub-2% prices are now almost double and close to 4%, coming as a big shock to buyers. Before they’ve even started their mortgage repayments, they’re being hit with rate shock at precisely the worst time.

“Worst of all, there’s a chance they will no longer be able to secure a mortgage at all, meaning they’re out of pocket due to the exchange and out of home. It’s an issue that urgently needs addressing.”

According to Jamie Thompson, of Manchester-based Jamie Thompson Mortgages, there is a simple solution to this.

“At exchange, a completion date must be set,” Thompson said. “If the developer is not able to hand over a signed off property by that completion date, any costs that are incurred by the buyer, such as rent, increased mortgage interest if the mortgage offer expires and storage of belongings, must be paid for by the developer.

“If that happened, they’d soon get their act together. The whole set-up right now is geared towards the developers and can leave buyers out on a limb.”

For Imran Hussain, director at Nottingham-based Harmony Financial Services, some form of regulation needs to be brought in for new build developers.

“Currently, they are a law unto themselves and are treating buyers with contempt,” he said.