When developers’ sales targets slip, their marketing teams are quick to announce a range of initiatives to encourage more activity. The most popular involves inviting potential buyers to part exchange their existing properties, as a deposit, in a deal to acquire a new build.
But, as with anything to do with financial transactions, you need to check the facts first; is it a good or bad deal for you, personally? There could be implications if you have a mortgage on your existing property, and will need one on your purchase; check if you face penalties for early surrender, and any other fees which may be applicable.
If you are struggling to find a buyer for your existing property, or would like to be chain-free (without potential purchasers also seeking to secure purchasers for their own homes before buying yours, which can lead to delays and uncertainties) and avoid estate agents’ fees, part exchange could be a good option. Alternatively, you may have inherited a property, and wish to use it as a deposit, perhaps retaining your own as an investment to let, providing an income.
Speeding up a transaction through part exchange could also help if you are in a hurry to relocate for a new job, or the start of a school year, and your first choice is a new build.
Nevertheless, for a property to qualify for part exchange, it should represent at least 70% of the new build’s asking price, and leaseholds should have at least 80 years remaining on the lease. Unmortgageable properties are excluded, as are those with any structural defects.
If all boxes are ticked, you need to ensure you get best value. Developers will obtain valuations to arrive at a market price, but you should also instruct your own independent valuers, for comparison, to avoid any significant loss.
And, before agreeing a deal, be prepared to negotiate on the market price offered, as well as the asking price for your new home. In some cases, developers will offer extras, such as white goods (ensure they come with guarantees), carpeting, or paying stamp duty.
Although not commonplace, some developers may be persuaded to include a covenant in an agreement to make an additional payment to you, after all costs, if your part exchange property sells above the ‘market price’.
Developers may also recommend a specific mortgage provider, and even conveyancing services. It is likely that they benefit from commission from these businesses, so homebuyers should instruct their own specialists to guarantee the best independent guidance for the biggest purchase any of us are likely to make.
Never be a pushover. Remember, developers want your business, just as much as you want your new build home! Moving house is inevitably stressful, and you can feel vulnerable, so remember to update insurance; preferably instruct a removal company which is recognised for quality and reliability by organisations like Check-a-Trade.
Our experts in our local Mortgage Centres are available to provide unbiased advice, accessing the latest and best mortgages to suit individual circumstances. They can also secure the right buildings and home insurance from the date you complete on your purchase.
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