Buyers face bankruptcy in off-plan timebomb

Hundreds of young professionals face financial ruin because they can no longer afford "off-plan" homes they signed up to buy during the boom.

They are stuck in negative equity after purchasing London flats that are not even built. Many are facing a financial black hole of up to £100,000 as the homes plunge in value and lenders refuse a mortgage.

They are legally liable for the full cost of the apartment because they have already exchanged contracts but most do not have the cash to fund the huge investment and could be made bankrupt and sued as a result.

Evening Standard has learned that buyers in at least 11 off-plan schemes in London, run by five separate developers, say they will be unable to complete.

Thousands could be affected across Britain as contracts on 12,000 new homes are due to be completed in the next year and most developments sell at least half of their homes off-plan.

Experts warned of an "off-plan timebomb" over the next two years as many hundreds are forced to default.

A first-time buyer who exchanged on a two-bedroom flat in one London development, and is due to complete later this year, estimates he will be £150,000 short. An accountant, he fears being struck off if he is sued and made bankrupt. The man, who asked to remain anonymous, said: "I can't sleep. I'm worried I could lose my career and my life will fall apart."

The man has paid a 15 per cent deposit on a property he exchanged on for £500,000. But it is now valued at £400,000 and he can only borrow 70 per cent. He added: "I owe £425,000 but I can only get hold of £280,000. It's a nightmare. "

The off-plan market was rampant in 2006 and 2007, with many seeing it as an easy way to profit. But buyers have been hit as values slumped by up to 30 per cent and mortgages worth up to 95 per cent of the purchase disappeared.

Mark Loveday, a property barrister at Tanfield Chambers in London, said: "The off-plan timebomb is huge and has already started to go off. It's a nightmare because the level of debt and money lost is huge."

Mr Loveday, a Tory councillor in Hammersmith and Fulham, added: "Worried buyers should consult a lawyer as there are sometimes ways to get out of a contract.

"Developers are looking for quick cash in the current market so there may be some room for compromise on price."

Leonard Goodrich, head of property law at Lewis Silkin solicitors, said suing for damages would be "bad publicity" but developers were able to do so.

Evening Standard contacted five developers - Galliard, Berkeley Homes, Telford Homes, Brookfield Multiplex and Durkan. All said they sympathised with buyers but that it was fair to hold people to their contracts.