Navigating the New Build Landscape: Insights and Implications for Buyers
Trends in new build developments
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.
Shared Ownership: Allows buying a share of 10% to 75% in a new-build property.
Lifetime ISA: Adds a 25% government bonus to under-40s' savings, up to £1,000 per year.
Mortgage Guarantee Scheme: Supports 95% mortgages, set to end on 31 December 2023.
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.
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