Navigating the New Build Landscape: Insights and Implications for Buyers

Recent Home Builders Federation (HBF) finding show a stark decline in planning permissions for new homes in England, reaching the lowest since 2006. In the second quarter of 2023, only 2,456 housing projects were approved, a drop of 10% from the previous quarter and 20% year-over-year. 

These figures highlight the industry's challenges amid a worsening economy and restrictive policies. Regionally, while London and the East of England saw decreased approvals, the North West, South East, and South West experienced increases. Scotland's approval rates remained stable.

Property prices and deposits: A closer look

The property price landscape for new builds is diverse. 

At Better.co.uk, we have seen in a 6-month comparison between November 2022 - April 2023 and May 2023 - October 2023, terraced house prices rose by an impressive 17.48% (largely thanks to Christmas slow down), whereas prices for flats (-8.28%), detached houses (-2.85%), and semi-detached houses (-0.21%) declined. 

Additionally, there's been an uptick in the average deposit size for new builds, now at £29,650, suggesting a trend towards larger deposits.

Prominent lenders for first-time buyers purchasing a new build

Our data indicates Halifax as the leading lender in new build mortgage recommendations over the past year, holding 19.83% of the market. Leeds Building Society follows with 12.25%, excelling in low deposit and shared ownership mortgages, vital for new build purchases. Other key players include Barclays (11.92%), Skipton Building Society (9.08%), HSBC (6.55%), Santander (6.27%), and Nationwide (6.22%).

For new builds, all standard mortgage types are available, including fixed, variable, and interest-only options. However, it's important to note that lending criteria might be tighter for new builds due to risks like value depreciation. Additionally, buying off-plan carries the risk of mortgage offers expiring if there are construction delays.

New build mortgage options and challenges

Navigating the mortgage market for a new build can be daunting for first-time buyers. Understanding why these challenges exist and how they impact the mortgage process is crucial. Amanda Aumonier, our Operations & Sales Director, shares her insights on key considerations:

Lease Terms

"Some leasehold agreements have clauses where the ground rent doubles periodically, significantly increasing costs over time. It's vital to review and negotiate these terms, as they can impact the property's saleability and affordability."

Larger Deposits for New Builds

"New builds are often seen as riskier by lenders, leading to higher deposit requirements. Exploring products like Deposit Unlock or Shared Ownership can be advantageous for first-time buyers."

Shorter Mortgage Offer Validity

"New builds often face construction delays. It's crucial to obtain mortgage offers with longer validity and maintain open communication with lenders to align timelines."

Exchange Deadlines

"Developers may require a quick exchange of contracts. Engaging a mortgage broker early can help navigate these tight timelines more effectively."

Modern Methods of Construction (MMC)

"MMC properties, like modular homes, can be less familiar to lenders. It’s important to seek lenders who specialize in these constructions."

Eligible government schemes for new builds

  • First Homes: Offers 30% to 50% discounts for eligible first-time buyers, with income and property value caps.

  • Lifetime ISA: Adds a 25% government bonus to under-40s' savings, up to £1,000 per year.

  • Deposit Unlock: A new scheme for new-build purchases with just a 5% deposit.

The pros and cons of choosing a new build over an older property

Choosing a new build over an older property comes with various benefits and some drawbacks, each explained in detail below.

Pros

Modern design and specifications

New builds are constructed with the latest designs and building standards, offering modern amenities and facilities.

Energy efficiency

New builds are often more energy-efficient than older properties, potentially resulting in lower utility bills.

Customisation

Some developers allow buyers to have a say in the fixtures, fittings, and sometimes even the layout, if the property is purchased off-plan.

Incentives

Developers sometimes offer incentives to encourage sales, such as contributing towards legal fees or including appliances.

No upward chain

As the property is brand new, there’s no chain of previous owners, which can simplify and speed up the buying process.

Warranties

Most new builds come with a 10-year warranty (such as NHBC in the UK), providing peace of mind.

Safety & Regulations

New builds have to comply with the latest safety standards and building regulations.

Developer offers

Some developers offer shared equity schemes or other programs to help buyers get on the property ladder.

Cons

Price

New builds often come with a price premium compared to older properties.

Space

Modern properties, especially in urban areas, can have smaller living spaces than older homes.

Limited character

New builds might lack the unique features and character that older properties can have.

Snagging issues

Some new homes may have minor faults or ‘snags’ that need rectifying after moving in.

Depreciation

Like a new car, a newly built property can depreciate in value once it's no longer brand new, although it may appreciate over the long term.

Development risks

If buying off-plan, there is a risk of delays in construction or the developer running into financial difficulties.

Resale value

The premium price paid for a new build can impact its resale value, especially in the short term.

Limited bargaining power

The price of a new build is often non-negotiable, as developers aim to maintain the value of other properties in the development.

Why are new builds typically more expensive to buy than older properties?

There are several reasons for this, including modern specifications and features, energy efficiency, less maintenance required, incentives and schemes, premium for ‘new’, developers’ pricing strategies, location and infrastructure, land costs, and build quality. We have described each of these in more detail below:

Modern Specifications and Features

New builds come with the latest design trends, modern amenities, and up-to-date technology, which can make them more appealing and, consequently, more expensive.

Energy Efficiency

Newly constructed homes have to comply with the latest building regulations, which include standards for energy efficiency. This can result in lower utility bills for the homeowner, making the property more desirable and potentially increasing its value.

Less Maintenance Required

With everything brand new and under warranty, buyers expect to spend less on repairs and maintenance, at least in the short term, which can justify a higher initial purchase price.

Incentives and Schemes

The availability of government incentives and schemes for new build properties, especially for first-time buyers, can increase demand and, as a result, the price.

Premium for ‘New’

Much like buying a new car, there’s a premium for buying a property that’s brand new and has never been lived in before.

Developer’s Pricing Strategy

Developers price new build properties to reflect the costs of construction and the profit margin they wish to achieve. They also aim to maintain consistency in pricing across a development to uphold the value of all properties within it.

Location and Infrastructure

New developments are often strategically located with good transport links and access to amenities, which can command higher prices. Additionally, new infrastructure and community facilities can add to the appeal and value.

Land Costs

In some areas, the cost of land is high, and this cost is passed on to the buyer in the sale price of the new build property.

Build Quality

New builds must meet current building standards, which can be more rigorous than those in place when older properties were constructed. This can lead to better build quality in new builds, which can command a higher price. However, with the rise in professional snagging customers and negative press, the quality of new builds is often a source of debate in the media.

How might a new build development impact a local area?

  • Infrastructure Improvements: Developers often make contributions to local infrastructure, which can make an area more appealing and boost overall property values

  • Increased Local Amenities: New retail spaces, schools, parks, or recreational areas can be built alongside residential developments, making the area more desirable.

  • Economic Stimulus: New developments can stimulate local economies by creating jobs and attracting new businesses.

  • Modernisation: New builds can modernise an area, attracting a broader range of potential buyers or renters, and thus potentially raising local property values.

  • Increase in Demand: The marketing activity around a new development can raise the profile of an area and draw more attention from potential buyers, increasing demand and prices.

  • Balanced Market: In some areas, especially where housing demand matches supply, the impact of a new development might be relatively neutral

  • Stable Economic Conditions: In regions with strong economic conditions and consistent growth, the effects of new builds might be absorbed without much fluctuation in prices.

  • Existing Property Variety: In areas with a diverse range of properties, the addition of new builds might not significantly alter the overall market dynamics.

  • Oversupply: If there's a significant influx of new properties, it can saturate the market, leading to potential price stagnation or even drops in property values.

  • Loss of Character: Large new developments might change the character of an area, which might not appeal to those who value traditional or historic aesthetics.

  • Traffic and Congestion: More residences can lead to increased traffic and strain on local infrastructure, which might deter potential buyers.

  • Short-Term Price Dilution: In the immediate term, if multiple properties in the new development are put up for sale or rent simultaneously, it might slightly suppress prices in the local market.

  • Construction Disruptions: Ongoing construction can be disruptive, leading to noise, dust, and traffic diversions, which can temporarily make an area less appealing.

Examples of potential positive impacts

Examples of potential neutral (or minimal) impact

Examples of potential negative impacts

  • Infrastructure Improvements: Developers often make contributions to local infrastructure, which can make an area more appealing and boost overall property values

  • Increased Local Amenities: New retail spaces, schools, parks, or recreational areas can be built alongside residential developments, making the area more desirable.

  • Economic Stimulus: New developments can stimulate local economies by creating jobs and attracting new businesses.

  • Modernisation: New builds can modernise an area, attracting a broader range of potential buyers or renters, and thus potentially raising local property values.

  • Increase in Demand: The marketing activity around a new development can raise the profile of an area and draw more attention from potential buyers, increasing demand and prices.

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