The Mortgage Clinic: 'Our off-plan flat is now a ball and chain. Help!'

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The Independent Online

'My partner and I made a 5 per cent downpayment for a new £232,995 off-plan flat in May 2007, to be completed in December; it's probably worth £200,000 now. Our adviser says we'll need a deposit of at least £52,995 to get a mortgage deal; to cancel, we'd have to pay 10 per cent – £23,299.50. Help!' FL, London

Off-plan flats have been badly damaged by the credit crunch, as you have sadly discovered. Their appeal to many people depended on rising markets: buy before construction and you'll be in profit when it's finally built, at which time you can either sell up and pocket the difference or tap into its equity.

For this reason, they have been especially popular with buy-to-let investors looking for speedy returns. But now that prices are falling – down by 11 per cent over the past year, according to Halifax last week – many who plumped for off-plan homes face financial difficulty from which there is simply no easy exit, says David Hollingworth of broker London & Country.

"Concerns around the oversupply of new-build flats and incentives offered has led to lenders being increasingly restrictive on these types of properties," he says. "There are still 95 per cent LTV mortgages available – from Halifax, for example – that could allow you to raise a slightly larger mortgage, but they are few and far between, and the rates will be higher."

Since there's no way around a bigger deposit to plug the gap between your negative equity and a home loan, you could try to negotiate with the developer, says Mark Harris of Savills Private Finance.

"Your adviser has said that you will have to pay another £23,299.50 to simply walk away from the deal. Double-check whether this is the case. You may be able to negotiate a reduced amount with the developer."

There is plenty of interest in this from developers, adds Andrew Montlake of Cobalt Capital, because it also offers them a way out of trouble. "There are deals to be done; it is in their interests for you to go ahead with the purchase, rather than just get the 10 per cent cancellation, as they will struggle to resell it in this market."

There's yet another option to consider, says Ray Boulger of John Charcol. "It may be possible to utilise the new HomeBuy Direct scheme just announced by the Government, whereby the builder and Government jointly provide a 30 per cent equity loan at no interest for the first five years and only 3 per cent for the next five." This would help bring you within reach of more affordable regular mortgages, too. More details will likely be released in the Chancellor's pre-Budget report.

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