What is a new-build property?
A new-build property is one that is 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 how much you can afford to spend before 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. 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. 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 cheaper 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. Often deals are available at the beginning of the development or when only a few properties remain.
Compare the price of the new build home price to similar 'old' houses in the area that 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. The cost varies, but it is normally around £1,000 and will be deducted from the deposit payable on exchange.
If you pull out, you will loose your reservation deposit.
4. Start the legal and financial process
Appoint a conveyancing solicitor to deal with the legal aspects of your purchase. The legal side of buying a new build is more complex than other types of conveyancing, so it is advisable to choose a solicitor who has experience of this.
Start the process of applying for a mortgage.
5. Exchange contracts and pay your deposit
You will usually exchange contracts months before you move into a newly built property. At this point, you will be required to pay a deposit, usually between 10% and 30% of the purchase price.
6. Wait for your house to be ready
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.
Significant delays can be a problem because it puts you at risk of losing your mortgage offer. Most mortgage offers are valid for six months. Ideally, get the developer to agree to a 'long stop' date. If they don't finish the property by this date, you will be entitled to compensation.
7. Get ready to move in
When your new home is ready to move into, your solicitor will arrange for your mortgage lender to release the funds and take the necessary steps to complete the sale. On the day of completion, you will receive the keys and other paperwork such as logbooks, manuals and guarantees. Make sure you understand the process for reporting any defects.
Before you move in, it can be a good idea to 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 property's value 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.
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 property's value has fallen during this time, you may find it harder to resecure a deal.
What schemes can help me buy a new-build?
A new Help to Buy: Equity Loan Scheme was launched on 1st April 2021 and will run until March 2023. 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.
To be eligible, you must be a first-time buyer. You will not be eligible if you have owned a home or land anywhere in the world, either now or in the past. This includes inherited property and property you owned jointly. The home you are purchasing must be a new build, and the property developer must be registered with the scheme. There are also price limits on homes you can buy with an equity loan, and these differ regionally.
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 needed to maintain the building, including buildings insurance, maintenance and repairs, and provision of leisure facilities, concierge services, or additional security. If you buy a flat in a new build, have your solicitor check the lease thoroughly.
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, you 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 newly built property in central London contact us today.