Even though the UK government has continually promised an annual increase in new build properties, many remain sceptical. Consequently, UK property prices have remained relatively robust throughout recent financial challenges. When looking at a new build home, there are many specific issues to consider.
Cost of homes in the UK
Before analysing the pros and cons of buying a new build home, it is worth reminding ourselves about the cost of homes in the UK. As you can see from the graph below, the average house price in the UK saw a sharp downturn following the 2007/8 economic collapse. However, it did not take long for the uptrend to re-emerge. As of August 2020, the average UK home cost £239,000 - which is a record high.
As you can see from the graph below, in recent times, house prices in England have outperformed those in Scotland, Wales and Northern Ireland.
While nothing is guaranteed, in the long term there has been a strong uptrend in UK house prices. The situation with regards to new build properties is different. There are many other factors to take into consideration which can, in some cases, dampen short-term house price appreciation.
Is it worth buying a new build?
The UK new-build market has always been relatively healthy, due in the main to a lack of new build properties and growing demand. Many people will identify with the positive aspects of buying a new build property, but there are downsides. Let's look at the pros and cons of buying a new build property.
Some of the main benefits of buying a new build property include:
- Ability to influence decor if purchased off-plan
- Many developers will offer financial/product incentives
- Lower bills with new homes built under strict eco-friendly/energy efficiency regulations
- No chain - reducing uncertainty and duration of the purchase process
- Warranties - most new build properties come with a ten year National House Building Council warranty
- Potential to negotiate a reduced price, depending on the housing market and development popularity
- Access to cheaper finance via Help to Buy Scheme
- Everything is new!
The idea of being the first to live in a new property, and the blank canvas this offers can be a strong attraction.
Unfortunately, there is always a flip-side to the coin and numerous issues to be aware of. Some of the downsides to acquiring a new property include:
- Lack of space - new developments tend to cram as many relatively small rooms into a property as possible
- Often sold as leasehold, not freehold - leading to annual payments/restrictive covenants
- Snagging - this is an inevitable part of a new build development. In a perfect world, the developer would fix all snags immediately
- With off-plan purchases, there can be delays, and there is always a risk the property will not be finished
- High LTV mortgages can be difficult with the "new build premium"
- Be aware of developers trying to upsell expensive equipment such as washing machines and flooring.
- Zero property valuations - while not common, some new developments have proven troublesome to finance
It's easy to get caught up in the excitement of acquiring a brand-new property and making it your forever home. Thankfully, the majority of buyers will enter negotiations with their eyes wide open, fully aware of the pros and cons.
As you can see above, there are still many benefits to acquiring a new property. If the developer is struggling, or property sales on new developments are slow, there may be scope to negotiate significant discounts. If you don't ask, you won't get!
Is it better to buy a new home or used?
While there are many benefits to acquiring a new build home, the best comparison is probably that to buying a brand-new car. Before you buy the vehicle, it is brand-new and therefore attracts a premium against a second-hand counterpart. However, once you drive the car out of the garage, the price can depreciate significantly.
A report by the Land Registry in 2019 concluded the average new-build premium to be a staggering 29% compared to existing properties. Consequently, it is crucial to negotiate the best price possible when looking at a new build property. In theory, although there are many other factors to take into consideration, a brand-new property could deteriorate in value in the short-term. However, in reality, the demand for high-quality developments tends to remain healthy, therefore supporting selling prices to a certain extent.
Reasons for buying a new build home
There are various reasons why homeowners over 50 years of age might be looking towards a new build property. These include:
- Relationship breakups
- Family leaving the nest
- Move from two-level to one level property (bungalow)
- Reduced mortgage
- Releasing equity
- Moving closer to family
- Pay-off mortgage
- Reduced running/maintenance costs
- Move to a more sedate lifestyle
Many of the so-called "baby boomers" have seen a significant increase in the value of their long-term homes. The opportunity to downsize, release equity and use this to fund future expenditure has been a strong attraction for many.
Potential issues with traditional mortgage affordability tests can be overcome with lifetime mortgages. These arrangements allow interest to be rolled up, and repaid with capital, at the end of the mortgage. Recent historic low interest rates have been another prominent factor for those looking to acquire new build properties.
The dangers of leasehold new build homes
In recent times there has been some controversy about new developments, and the use of leasehold arrangements as opposed to freehold. As the freeholder, this has allowed numerous developers to create long-term income streams relating to costs such as:
- Service charges
- Maintenance charges
- Ground rent
Historically, leasehold arrangements tended to mostly cover flats, where there were significant shared areas. Due to the effect of compounded annual interest, what may start as a relatively small yearly payment, can increase significantly over the years. Indeed, there have been occasions where the ongoing increase in leasehold payments has reduced demand for property, thereby impacting sale prices.
Should you buy a new build home?
There are several factors to consider when looking to acquire a new build property. While for many an ultimately rewarding experience, it is vital to be aware of the pros and cons before starting this journey. The issue of leasehold properties and annual charges are a recent introduction to the mix. The UK government are currently looking at ways to curtail what many see as excessive charges. This may take some time. That said, the opportunity to buy a new build property, place your stamp upon the decor and make it your forever home, still has enormous attraction to many.