Newspaper article The Evening Standard (London, England)

Young Homebuyers Face Bankruptcy after Off-Plan Flats Plunge in Value

Newspaper article The Evening Standard (London, England)

Young Homebuyers Face Bankruptcy after Off-Plan Flats Plunge in Value

Article excerpt

Byline: Mira Bar-Hillel and Sri Carmichael

YOUNG Londoners are facing financial hardship because they can no longer afford homes they agreed to buy offplan during the boom.

One of Britain's biggest housebuilders, Berkeley Homes, is threatening to sue customers for up to [pounds sterling]100,000 each after they failed to honour sales contracts.

The developer has already taken deposits of up to [pounds sterling]60,000, meaning many have lost savings. Now 83 buyers say they will be forced to make themselves bankrupt if they are pursued for more money.

The buyers are paying the price of a gamble they took when property values appeared to be rising inexorably.

In 2007, as the market soared, hundreds agreed to buy flats from Berkeley Homes at Caspian Wharf in Docklands, and Royal Arsenal Riverside in Woolwich, that had yet to be built -- known as buying off-plan. They bought these homes, now finished, for set prices of up to [pounds sterling]600,000 and each paid a 10 per cent deposit. They hoped the properties would have risen in value when it came to paying the balance two years later.

But as the credit crisis sparked a slump in the housing market, the finished apartments are now being valued at up to 40 per cent less.

The problem has been made worse by banks pulling 90 per cent mortgage deals and refusing to lend the buyers enough to complete on the original deals. As a result, 83 of them have been forced to default on contracts. Most are private homebuyers, not investors.

Berkeley Homes is legally entitled to keep their deposit and sue them to recover the difference between the original price agreed and the price at which the property can now be sold.

Berkeley chief executive Tony Pidgley has written to housing minister John Healey urging him to lend buyers government money to buy the flats -- or, alternatively, force nationalised banks to make larger loans. The Government has refused to get involved in what it sees as a contractual dispute. …

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