House builders are considering their options to deal with the large number of customers expected to default on off-plan deals signed before house prices crashed.
With a wave of developments started before the credit crunch hit set to be completed this year, one of the major listed house builders described the situation as an “off-plan timebomb”.
Firms fear that consumers who put down deposits on properties a year or more ago will either discover they can’t find a mortgage to cover the balance, or will be prepared to lose their deposits rather than put themselves in negative equity.
House Builders Federation director of economic affairs John Stewart said many developers would have to resort to slashing prices to keep off-plan buyers interested. But builders are also looking at lobbying the Government to make up the shortfall for first time buyers, and considering suing investment buyers who don’t stump up.
Berkeley Homes chairman of urban developments John Anderson said the industry was facing a mix of tightened lending, falling house prices and soon-to be completed developments.
“Banks have changed their rules and this is a big problem for the whole industry,” he said.
Construction was started on about 69,000 new private homes in the UK in 2008, according to the National House Building Council.
Most of these will be completed in 2009. According to the Land Registry, the average house price slumped by 15 per cent in the year to January – creating incentives for people who put down 10 per cent deposits a year ago to default.
But Mr Anderson said Berkeley Homes would take a hard line on investors looking to pull out for strategic reasons.
“We will take each case on its merits,” he said. “But ultimately it could mean legal proceedings.”
Mr Anderson added: “We will ask the Government to step in to assist first time buyers.”
Mr Stewart said the HBF was already lobbying hard for the Government to assist house builders.