Getting money to book a new home

Anybody looking to buy a newly-built home these days must feel a little bit spoiled by the range of developments on the market.

Even the vaguest flick through the pages of this property supplement will throw up seemingly endless options: sites by the sea, sites on the DART line, sites soon to be on the Luas line, sites claiming to be within driving distance of Dublin . . .

With an estimated 60,000 houses to be built in the Republic over the course of this year, those seeking brand-new homes have never had such an array of options. Depending on the new property's stage of construction, the mortgage element of buying a new house can be very different to that attached to second-hand properties.

It is possible, for example, to put a deposit down on an "off-the-plans" property without even approaching a mortgage provider on the subject of a loan.

This is because most developers will view the deposit as sufficient security for the sale. Mr Peter Bastable of mortgage adviser Simply Mortgages says builders will then tend to wait a few weeks (up to six) before issuing the contracts that will formalise the deal.

He says buyers should be cautious in such circumstances however, advising that legally-binding agreements should not be signed in the absence of loan approval, regardless of how picky the developer may or may not be on the issue.

In general he says, it is very normal for mortgage approval to be delivered for new properties long before they are completed or become ready for habitation.

He points out that approvals tend to last for a fixed period of time, with buyers of homes still in construction advised to agree an expiry date with their lender at the start of the process.

It can also be established at this stage that the approval will automatically be renewed if it expires before the house actually changes hands. It will however always be the case that lenders reserve the right to withdraw the loan if the borrower's financial circumstances change between the time of approval and draw-down. "In theory the lender can withdraw the offer in the event of a relationship breakdown or a negative change in financial circumstances," says Mr Bastable. He is happy to say however that he has never in practice come across an instance of approval being withdrawn mid-purchase.

Where relationships have broken down, for example, it has been normal for one party to keep the house with the help of a new partner or guarantor. "In the current market, developers are reluctant to let people out of contracts," he says.

If the buyers do decide that they want to pull out of the purchase altogether, they naturally run the risk of losing their 10 per cent deposit and will not be in a position to "trade" their place in the development queue with another buyer.

It is not uncommon however for a builder to give the money back if he feels he can sell the house to another party without difficulty. In a sense, the best time to pull back from the deal is after the booking deposit has been paid but before the full deposit (usually 10 per cent) has been advanced.

"If a purchaser wishes to pull out after merely placing a booking deposit, they can and will be given the deposit back, although this is usually subject to some time limits," Mr Bastable says.

As far as the actual cash is concerned, the property is usually secured in the first place through payment of a booking deposit of up to €6,000. Some weeks later, the balance of 10 per cent will, at least in theory, be required. Mr Bastable says this rule has become a bit more flexible in recent times however.

"In the competitive market we are in where borrowers can borrow 92 per cent of the purchase price, builders will take the balance of 8 per cent."

In general, the system of payment will vary according to the location of the property or the developer in question. In some cases, for example, up to 80 per cent of the property price will be paid over in "stage payments" before the house finally becomes habitable.