New build homes are a popular option. Whether you are a first-time buyer, looking for a family home or down-sizing, buying a new build property offers many advantages. But there are potential pitfalls that many people are not aware of.
This guide to buying a new build property will walk you step by step through the process.
What is a new-build property?
A new-build property is one that’s newly built and has never been lived in. If you are buying a property where work hasn’t started on the development, or the property is in the process of being built, this is called buying ‘off plan’.
Why buy a new-build property?
There are many advantages to buying a newly built property, rather than an older one.
- Repairs and maintenance costs should be minimal for the first few years
- Energy bills should be cheaper because the property will be better insulated
- New properties often come with guarantees. If the property is registered with the National House Building Council (NHBC), it will come with a 10-year warranty.
- Buyers can often select the fixtures and fittings
- If you need financial help, the governments Help-to-Buy Equity Loan scheme is only available on new-build properties
The process of buying a new-build home
1. Check your finances
Talk to a financial advisor or your bank to establish how much you will be able to borrow. This will help you understand much you can afford to spend, and what your upper limit is before you start looking at properties.
Make sure you set aside money for the buying process itself, such as paying solicitors fees and stamp duty.
2. Find a new-build home
The next step is to find a development you like the look of. Make sure you research the local area to ensure it has all the amenities you require as well as the developer’s track record for delivering high-quality properties on time. Confirm that the builder is a member of the National House Building Council (NHBC). The NHBC require their members to build to a high standard required. You will also receive a ten-year guarantee and an insurance policy to cover any major problems regarding the new building.
Most new developments will have a show home to illustrate the quality and finish of their properties. Ask for a tour of the site as well as viewing the exact style of property you plan to buy. Find out what is included in the price, for instance, built-in wardrobes, flooring and white goods. Be wary of add-on items; you may find it is cheaper for you to source and pay for them yourself.
Many developers will hold an open day, these often come with incentives such as paid stamp duty, help with moving costs, or part-funding of deposits.
3. Put in an offer and pay a reservation fee
Like any house price, the price advertised is only an asking price so you should be prepared to negotiate. There are often deals to be done at the beginning of the development or if there are only a few properties left.
Compare the price of the new build home to similar ‘old’ houses in the area which have sold recently. Check the price per square foot to get a rough idea of any premium you are paying.
If you can’t negotiate on price, you can still ask the developer to pay your stamp duty or throw in freebies such as flooring or furniture.
If your offer is accepted, you will need to pay a reservation fee which takes the property off the market, this is normally deducted from the deposit you have to pay later.
4. Start the legal and financial process
Appoint a conveyancing solicitor who will go through the same legal process as when you’re buying any property, including local searches and looking at the contract.
Start the process of applying for a mortgage (see below for information about new build mortgages).
5. Exchange contracts and pay your deposit
With a new build property, you will usually exchange contracts months before you move in. Generally, you will be required to put down 10 per cent of the purchase price (minus the reservation fee already paid). At this point, you’re legally committed to buying the property: if you don’t, you’ll lose your deposit.
6. Wait to move in
Your builder will give you an approximate completion date, but this may be subject to delays the developer has no control over - the weather being the main culprit. However, it is important to get a date to focus on. It would be a good idea to visit the site regularly to see how things are progressing as this could affect you if you have a mortgage with a deadline.
When the build is complete, you will be sent a completion notice telling you how long you have to complete on your purchase - usually about two weeks. You just need to let your mortgage company know and your solicitor will do the rest. You will be able to collect the keys on the day of completion.
Before you move in, make sure you have a snagging survey conducted so that any issues with the property can be identified and fixed as quickly as possible.
New build mortgages
You may find that you are charged a higher interest rate for a mortgage on a new build property. This is because lenders see these mortgages as riskier, due to the possibility that the value of the property may fall in its early years.
Some lenders set a lower maximum loan to value ratio on new build mortgages so you might find you need to save a larger deposit to secure a mortgage for a new build property.
Timing can also be an issue. Mortgage offers tend to last for six months. If the development takes longer than this to complete you may need to re-apply for the loan. If your financial circumstances have changed or the value of the property has fallen in this time then you may find it harder to resecure a deal.
What schemes can help me buy a new-build?
The government has created Help to Buy schemes which give home buyers a helping hand onto the property ladder. These schemes are exclusively available on newly built properties.
The two main schemes are:
With an Equity Loan, the government lends you up to 20% (40% if you’re in London) of the cost of your newly built home. You pay a deposit of at least 5% and arrange a mortgage to make up the rest. You won’t be charged interest on the Equity Loan for the first five years of owning your home.
The Shared Ownership Scheme offers you the chance to buy a share of your home (between 25% and 75% of the home’s value) and pay rent on the remaining share. You can buy bigger shares when you can afford to.
Are new build homes freehold or leasehold?
This may seem an obvious question, but one you should ask before you are too advanced in the buying process.
If you are buying a flat, it is normal for this to be sold on a leasehold basis. A leasehold gives the purchaser the right to occupy the property for the period specified in the lease. Owning a leasehold property will typically involve paying ground rent and a service charge to cover all the activities that are needed to maintain the building including, buildings insurance, maintenance and repairs and provision of leisure facilities, concierge services or additional security. If you are buying a flat in a new build, have your solicitor check the lease thoroughly. Some people have found they are trapped into a lease where the ground rent doubles every year.
Newly built houses should be sold as freehold. Purchasing a freehold property gives the buyer sole ownership of both the building and the ground it stands on. This is the most typical way of selling houses as they are standalone properties. However, some new build houses are now being sold with a leasehold, so make sure you check.
Pros and Cons of a new build
As you can see, there is a lot to think about when buying a new build property. To help you decide if this is right for you here is a brief summary of the pros and cons.
Advantages of buying a new build home
- New build homes come with a 10 year guarantee
- New build homes are built with the latest materials so repairs and maintenance should not be required and the energy bills should be lower than a similar older property
- You might be able to choose the fixtures and fittings
- There is no onward chain so the conveyancing process should be smoother
Disadvantages of buying a new build home
- The build may be subject to delays which can mean your mortgage offer expires
- There can be defects and teething issues with the property, and some developers are not good at fixing these promptly
- If you are the first to move in your can find yourself living in the middle of a construction site and having to contend with all the noise, dust, and mud that go with that environment.
Plaza Estates have many years of experience dealing with new build properties. If you would like help with buying a new build property in central London contact us