The pros and cons of moving to a new build

There’s something incredibly exciting about being the first people to live somewhere - to walk into a property that’s been designed to the latest standards, and finished with high specification appliances and fittings.

For many people the appeal of modern design, and the convenience of knowing exactly what you’re getting, makes purchasing a new build home particularly appealing.

But, is a new-build home the right choice for you?

In this article we look into the reasons people decide to move to new properties, and answer some of the most frequently asked questions.

Why do home movers choose new builds?

Convenience

Perhaps the main reason many people are attracted to new build homes is the convenience.

Because the property has just been built, it has to meet certain specifications for space, quality, and efficiency. You also don’t have to worry about things like: whether a property will be left in a good, clean condition; if there are any hidden structural issues; or whether you’ll need to do any renovations or repairs once you move in.

New build homes often come with a 10 year National House Building Council warranty, which can provide extra protection against any structural issues that might arise.

Logistically too, this is a benefit. For example, where you might want to get extensive structural surveys completed when buying a period property, you’ll likely only need what’s called a ‘snagging’ survey for a new build. This type of survey looks at the quality of a house builders work, from structure to finishings - and is often much cheaper than more intrusive investigations.

Moreover, because no one has to move out of the property before you can move in, you’ll have the reassurance of having no ‘upward chain’.

Energy Efficiency

New properties have to be built with various minimum standards in mind. This includes energy efficiency.

Most new build properties come with insulated walls, roofs, and doors, as well as double (and sometimes even triple) glazed windows. All these features mean that new build homes are often much more energy efficient than their older equivalents, which were built to different standards.

Other than being better for the environment, this also means lower energy bills.

Amenities & Community

Many new build flats, and some houses, are part of larger developments which include other facilities like swimming pools, gyms, chill-out spaces, gardens, and even restaurants.

These types of spaces offer extra areas to relax, work, and escape, without really having to leave your home. If you’re spending more time working at home, for example, having this extra space can make a huge difference to your wellbeing.

Incentives

There are also a range of financial incentives for those looking to move to a new build home.

Perhaps the greatest incentive is the Help to Buy equity loan. This scheme offers those buying new build properties a loan for up to 20% of the property price (or 40% in London). The loan remains interest free for 5 years.

Unlike the Help to Buy ISA, which was only available for first time buyers, the Help to Buy equity loan is for home movers too. The only restriction is that the loan must be used towards a new build home.

The scheme is ending on 31st March 2021, so if you want to take advantage you’ll have to have completed your home sale by that date. (This is the same day that the stamp duty holiday ends too.)

On top of the loan, many developers will offer other incentives too. It's quite common for house builders to offer to pay your stamp duty, or legal fees. Others might include brand new appliances as part of the home sale.

Frequently asked questions and concerns about new build homes

Will my home be built on time?

There are a few options when it comes to purchasing a new build property. You can:

• Purchase the finished apartment or house
• Purchase the property after visiting a show apartment
• Purchase the property before construction begins

If you decide to buy your new home 'off-plan' (before it’s finished being built), there’ll be a bit of uncertainty about when the property will actually be ready for you to move in.

When buying off-plan, you will receive a ‘short-stop’ and a ‘long-stop’ date. The ‘short-stop’ date is the day that the developer plans for your home to be finished. The ‘long-stop’ date is the day that your home legally has to be ready.

Most mortgage lenders will have a time limit of about 6 months on their offers. The provision of these dates is designed to ensure that your mortgage lender holds your loan offer open for enough time for the building to be completed.

However, according to research by New Homes Review, over 40% of new-build homes aren't ready by the original deadline. If your new home is one of these, this can be difficult financially. It will be at your bank’s discretion whether to keep your offer for a mortgage available for longer.

Delays to building works can also cause issues if you’re selling a home as well as buying. You may need to find temporary accommodation whilst you're waiting for building works to be completed.

Enlisting the help of a good conveyancer is incredibly useful here. They will keep both you and your mortgage lender up to date throughout the process. They'll also be there to help navigate whatever roadblocks you might encounter.

Is it better to buy a freehold or a leasehold?

If you choose to purchase a new build home, it’s likely that it will be a leasehold.

A ‘leasehold’, is essentially a long term tenancy agreement. You’re allowed to reside in the property for a set number of years, but there are restrictions in how you can use or alter the property.

You may also have to pay a range of fees each year, such as a ‘service charge’, or ‘ground rent’. These costs are used to maintain the communal areas of the building, and any gardens.

Before you decide whether to purchase a new-build, ask to inspect the lease for any unusual conditions. You may wish to have a lawyer look over the document too.

Things to look out for:

• Lease length & start date

The first thing to check is the length of the lease. Generally leases for new homes are somewhere between 99 years and 999 years. The longer the lease the better. It can be very difficult to sell a home if there are less than 80 years left on the lease.

You should also check when the lease begins. In some cases it will be from when building starts - rather than when you move in.

• Restrictions in use

Check if there are specific restrictions included in the lease. These can vary from restrictions on pets, to a ban on extensions.

• Permission fees

In some cases, you will be able to do certain 'restricted' things if you pay a designated ‘permission fee’. Check that these fees are reasonable, and that they do not include any unusual conditions.

• Ground rents

It’s normal for a lease to include a provision for ground rents. In some cases this will be a ‘peppercorn’, which in practice means you don’t have to pay anything.

However, in recent years, many developers have taken advantage of the ground rents provision to earn extra income. The worst offenders include a clause that doubles the amount due in rent every 10 years. So, if your ground rent is currently £250 a year, in 10 years it would be £500 a year, and in 20 it would be £1000. If the lease includes this, walk in the opposite direction.

• Service charges

Service charges are often also included as part of the leasehold agreement. This money is used to maintain the communal areas of the building - such as the entranceway, stairwells, and gardens. Make sure that the service charges are reasonable, and that you can afford these costs on top of your monthly mortgage payments.

Many flats in the UK are leaseholds (new build or old), and many people live happily in them. But lease conditions can vary hugely, so before you commit, make sure you clearly understand all of the terms that you’re agreeing to. If you're unsure, discuss the lease thoroughly with your conveyancer.

Read more about leaseholds on our blog. Head there now.

Do new builds lose value?

In many cases, new build homes come at a premium.

This is because, as the buyer of a new build, you'll be the first person to live and use the space - including all the appliances. You'll benefit from a building that's been constructed to the latest building and energy efficiency standards which also means you'll pay less in upkeep and bills in the first few years of living there.

Unfortunately, when you move in, the property will no longer be classed as a 'new build', so when it comes time to sell, you won't be able to sell at the new build premium price. If you sell your property within a few years of purchasing it, it's possible that 'second hand' house prices in your area won't have grown enough to get your money back.

However, if you’re planning to live there for a number of years, it’s likely you won’t notice this small drop in value. Like all financial investments, the value of a property can go up or down, but if you take a long term approach you can usually ride out any significant ‘losses’.

The most important way to protect yourself is to make sure you’re not overpaying in the first place. Before making an offer on a new build property, do your research. What sort of price are similar older homes in the area selling for? How much more expensive is a new build? How have house prices in general grown in the area over the past few years?

If you're curious about property price trends in your area, head here, for our local property market tracker.

You could also think about what trends are currently driving value growth in the property market. For example, at the moment, more people are looking for larger homes, with gardens or home offices. These types of homes are seeing much faster value growth than smaller properties with less space (a category which unfortunately many new builds fall into).

Luckily, if you're taking a longer term view, trends like this might not have too much of an impact. For example, new builds have the benefit of being more energy efficient, making them cheaper to run, and more environmentally friendly. These are all things that are moving higher up the priority list for many buyers at the moment.

If you're unsure, getting an online valuation, or talking to a local estate agent can give you a sense of the ‘true’ value of property in the area.

Remember: New build asking prices aren’t set in stone. Make sure to negotiate to get the best price.

How lease terms can affect value

Before committing to a sale, it’s also important to consider whether value might be lost by any issues in your lease, too. For example, ground rent clauses can make a property more difficult to sell in the future.

Luckily your conveyancer should be able to help here. They'll review the conditions of the lease in detail, and should let you know of any problematic elements before you sign the sale contract.

Some banks will also help. Many of the larger mortgage lenders, such as Nationwide, will refuse to lend money against new build properties with lease conditions they consider unfair, or unaffordable.

These checks can help you avoid getting trapped with a poor value - or worse, unsellable - property.

For more information about owning, and selling, a leasehold property head here.

What about homes bought with the Help to Buy equity loan?

The Help to Buy equity scheme allows buyers to purchase homes with a smaller mortgage, supported by a loan from the government. The scheme limits buyers to certain new build properties, sold by certain developers. Because buyers using the scheme are limited in the properties they are eligible to buy, they have less negotiating power when it comes to the price of the properties.

According to research by Which? between April 2013 , and the end of 2019, the average price paid by for a new build home increased by 39%. In contrast, the average amount paid by first time buyers using Help to Buy grew by a huge 51%. This suggests that on top of the standard 'new build premium', there is also a 'Help to Buy premium'.

Which? also found that around 1 in 7 homes bought through the scheme decreased in value when they were sold or remortgaged - despite local house prices growing. According to their research there were 26 local authorities that saw losses from Help to Buy properties. Worryingly, 21 of these 26 areas saw the prices of other homes rise by more than 10% in the same period.

This suggests that many properties sold through the Help to Buy scheme are being priced at levels significantly higher than the actual value of the property. Once these properties become 'second hand', they see an even more dramatic loss in value than other new builds.

Are new builds safe?

If you’ve been researching new properties online, it’s likely that you’ve come across news stories about ‘cladding’.

Cladding is used on buildings to insulate and provide resistance against the weather. There have been some cases where developers have used cladding that is not fire resistant, because it was cheaper, and this has compromised the safety of the entire building.

Since being discovered, a number of mortgage lenders require extra reassurance before they will lend on certain new build developments. Buildings taller than 18 stories now require an EWS1 (External Wall Fire Review) certificate before many lenders will consider offering a mortgage.

Your mortgage provider may have other specific safety conditions that new builds must fulfil in order to meet their criteria. If you’re unsure, talk to your provider - or an independent broker - to see what specifics they need.

Many newer developers are conscious of these restrictions, and developments are produced to a much higher standard. However, these extra hoops to be jumped through can delay home purchases by a number of months.

If you are able to purchase in cash, it is still worth ensuring that the building meets fire safety regulations. This will both be reassuring for your own safety - and will make the property easier to sell in the future.

If ensuring the safety of your new home is a priority for you, ensure that you get the help of a conveyancer with significant experience with new developments. They’ll be able to thoroughly check the planning permission, and the local building regulations to make sure that everything is in order.

Pros of older properties

In many cases, the positives that come with buying an older home are simply the other side of the new build coin.

For example, it’s easier to qualify for a mortgage if you’re purchasing an older home. In part this is because it is simpler to assess an older property’s value.

Secondly, older homes are usually larger than new build homes - particularly in cities. Over the past few years, space standards have reduced to cater for the need for quick and densely built property. It’s much more common for a new build to be a one or two bed flat in a tall building, than a detached 5 bedroom family home.

According to Which the size of new homes are now 20% smaller than in the 1970s. In fact after comparing the size of homes from every decade from the 1930s to now, LABC states that homes now have ‘never been smaller’.

And, where those in new build properties develop a sense of community from living in close quarters and sharing facilities, older properties tend to be part of more established areas and communities.

Conclusion

Ultimately whether you choose to move to a new build property, or opt for an older home will be down to your personal preference and circumstances. Weigh up the pros of each, along with information about their price, location, size, and all the other factors that are important to your decision. This should help you decide whether a move to a new build is the right next step for you.