It is attractive to many buyers to make a property investment in a house or unit even before a single brick has been laid down. This type of property investment is known as off-the-plan because the building doesn't even physically exist yet; the only information about it is contained in a developer's plan. You may be thinking that this is a risky way to make a property investment, but there are considerable advantages. One of the greatest advantages is that you, as the investor, can get considerable discounts taking the cost of the property, when it is eventually complete, below its market value. Secondly as the buying price of your property investment is made some months in advance of completion any appreciation in value will work totally in your favour when the property is complete.
Turning to the question of finance, the key question is how much can you borrow? On face value the rules are quite straightforward. As a first time buyer you can claim financial assistance of up to 95% of the agreed value. The same rate, 95% applies for investors too. Finance for a low doc borrower, those who are self-employed and therefore only submit an income statement the year after they have been in business, can claim up to 80% finance for off-the-plan property investment.
However, there are a number of conditions that financiers will attach to their loans for off-the-plan property investment. It is well advised to be perfectly clear what these are before accepting a proposal. Take time to shop around. Competitive basic loan discounts are available together with complete professional service packages. In a number of cases, lenders will not agree to final approval for your off-the-plan-purchase until the property has been completed, or at least is within 6-12 months of confirmed ready for occupancy. More often than not, the lender will want to see a certificate of occupancy before agreeing to settlement.
One of the problems the banks have is that their normal method of property valuation cannot be applied to off-the-plan valuations, as the property, at the time of the loan request, does not physically exist. In normal circumstances they would commission a property valuer to provide an estimate and compare that with the purchase price being requested. They would then take the lower value and decide how much to lend for your property investment. The challenge to the banks is that 12 months or even some years may pass from the moment the loan is requested until the final completion date arrives. For that reason banks use market value rather than purchase price in assessing the correct value.
You may think that requesting valuations from multiple investors could be a good idea. Certainly it would allow you to find the best deal from the lender who gives your request for property investment the highest value. However, there are risks. Getting a valuation normally requires that you request a loan. This request effectively adds the value to your credit score as a debt. Multiple requests could drop your credit rating drastically and result in you being unable to secure finance, so do take care.
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