So, you’ve set your sights on a new build – a blank canvas waiting to be turned into your dream home. Buying a new build house is an exciting journey filled with promise and possibilities.
In our latest guide, we’ll walk you through every step of the process, from understanding what a new build is to exploring mortgage options and assessing the investment potential. Whether you’re a first-time buyer or an experienced homeowner, this guide will equip you with the knowledge you need to make a confident decision!
What is a New Build?
A new build property is exactly what it sounds like – a house or apartment that has been recently constructed. These homes often come with modern features, energy-efficient technologies, and a fresh aesthetic that suits contemporary living. New builds can vary in size, style, and location, offering something for everyone’s tastes and preferences.
Most banks, building societies and mortgage brokers will class anything that has been built, refurbed or converted in the last two years as a ‘new build’, as long as the property has never been lived in.
The Process of Buying a New Build: A Step-by-Step Guide
1. Research:
Begin by researching different developers, locations, and property types. Be sure you’re using a reputable developer, and read lots of online reviews from people who have purchased from the company before to find out what they’re like to deal with.
You can also ask the developer you’re considering using if they’re signed up to the New Homes Quality Code. This new code was introduced in 2022, and focuses on ‘championing quality new homes & better consumer outcomes’ and comes with a New Homes Ombudsman Service which covers homeowners by allowing them to escalate developer disputes for free.
2. Mortgage Application:
If you haven’t already done so, now is the time to secure your mortgage! New build mortgages are tailored to the specific requirements of these properties. They often provide flexibility in terms of initial deposits and offer competitive interest rates. Once a lender is ready to lend to you, they will issue a formal mortgage offer – specialist new build mortgages will usually have much longer mortgage offer periods to allow time for the developer to finish the build. Make sure you have a clear understanding of the mortgage terms, repayment structure, and potential fees.
3. Reservation:
Once you’ve found the new build property that captures your heart, the next step is to reserve it. This involves paying a reservation fee, typically around £500 to £1,000. This fee takes the property off the market temporarily, giving you time to proceed with the necessary checks and paperwork.
4. Conveyancing:
Conveyancing is a crucial legal process in property buying. At this stage, you’ll need to appoint a solicitor or conveyancer who will act on your behalf. They will conduct various searches to ensure there are no legal or structural issues with the property. These searches might include local authority searches, environmental searches, and water and drainage searches. They will also check for any other liabilities that come with buying the home, such as estate charges or service costs. These often cover the upkeep of the shared and open spaces that the local authority will not adopt.
5. Exchange Contracts:
After the conveyancing checks are complete and your mortgage has been approved, it’s time to exchange contracts. At this point, you’ll need to pay the deposit, which typically ranges from 5% to 10% of the property’s value. Once contracts are exchanged, both you and the developer are legally bound to complete the transaction!
6. Completion and Handover:
The moment you’ve been waiting for arrives on the agreed completion date! On this day, the remaining balance is paid, and the property becomes officially yours. You’ll receive the keys and can start the process of moving in or making any desired changes to the property. Before completion, a final inspection is recommended to ensure that everything is as expected.
7. Snagging:
Once you’re settled in, it’s common to encounter minor issues or imperfections in the property, often referred to as “snags.” Most developers offer a snagging period during which you can report these issues, and they will rectify them under your warranty.
Navigating the process of buying a new build requires careful planning and attention to detail. Remember, patience and due diligence will help you secure the home you’ve always dreamed of.
The Benefits of Buying a New Build
When it comes to buying a new build, they often feature the latest technologies, energy-efficient systems, and contemporary designs, ensuring a comfortable and up-to-date lifestyle. You’ll likely also encounter fewer maintenance issues in the initial years, particularly with white goods and electricals that are all fitted brand new.
Most new builds come with a structural warranty that provides peace of mind against major defects for a set period, usually around 10 years. And depending on the stage of construction, you might have the opportunity to choose finishes and fittings, allowing you to personalise your space before moving in.
The Cons of Buying a New Build
While the prospect of owning a brand-new home is undoubtedly exciting, it’s important to be aware of some potential drawbacks that come with buying a new build property. Understanding these cons will help you make a well-informed decision and navigate any challenges that may arise.
New builds can have minor issues, known as “snags,” that need to be addressed after moving in. Some people also believe that new builds lack the character and charm found in older properties. Construction schedules can be subject to delays, too, potentially affecting your moving-in timeline.
While new builds are designed with modern features and materials, there’s always a chance that unforeseen issues might arise after you move in. It’s wise to set aside a contingency fund to address any unexpected maintenance or repairs that may be necessary. And new builds can offer the opportunity to customise certain features or finishes, but there are limitations to what you can change. If you have specific design preferences that aren’t aligned with the developer’s offerings, you might need to consider post-purchase renovations.
Understanding Leasehold, Freehold, and Management Fees
When buying a new build property, it’s important to grasp the concepts of leasehold, freehold, and management fees. These terms determine the ownership structure, responsibilities, and potential costs associated with the property. Let’s delve deeper into each of these:
Freehold:
With a freehold property, you own both the property and the land it’s on outright. This ownership structure offers greater control and autonomy compared to leasehold.
Pros of Freehold:
No Ground Rent: You won’t have to pay ground rent or worry about lease extensions.
Complete Control: You have more control over your property and land, including the ability to make alterations without seeking permission.
Cons of Freehold:
Higher Initial Cost: Freehold properties typically come with a higher upfront cost compared to leasehold properties.
Maintenance Responsibility: You’re solely responsible for maintaining both the property and the land.
Leasehold:
A leasehold property means you own the property itself but not the land it stands on. Instead, you hold a lease from the landowner (often called the freeholder) for a set period, typically 99 to 125 years. Once the lease expires, ownership of the property returns to the freeholder, unless you extend the lease. Leasehold properties are common in apartment buildings or developments with communal spaces.
Pros of Leasehold:
Lower Initial Cost: Leasehold properties often have a lower initial purchase price compared to freehold properties.
Maintenance: The freeholder is responsible for maintaining the structure of the building and communal areas.
Cons of Leasehold:
Ground Rent: Leasehold properties usually involve paying ground rent to the freeholder, which can increase over time.
Lease Extension Costs: Extending the lease can be costly and becomes essential as the lease term decreases.
New Builds and Management Fees:
In some cases, new build properties are part of developments with communal spaces, such as gardens, parking areas, or shared facilities. To cover the upkeep of these communal areas, you may be required to pay management fees or service charges. These fees contribute to maintaining the appearance and functionality of shared spaces and might cover services like landscaping, cleaning, and general maintenance.
Pros of Management Fees:
Well-Maintained Spaces: Management fees ensure that shared spaces remain well-maintained and aesthetically pleasing.
Shared Responsibilities: Costs are distributed among all property owners, reducing the financial burden on individuals.
Cons of Management Fees:
Additional Costs: Management fees are an ongoing expense that you need to factor into your budget.
Lack of Control: In recent years, some of these management fees have caused problems for home owners and potential buyers due to the way they are set to increase over the years. Other homeowners have encountered problems and delays caused by the wording of some of these contracts. Additionally, you might not have direct control over how management fees are allocated or spent.
When considering a new build property, it’s essential to enquire about the ownership structure, any associated fees, and the terms of the lease if applicable. Understanding these aspects will help you make an informed decision based on your financial situation, preferences, and the long-term outlook for the property. Consulting legal and financial experts can provide you with further clarity and guidance regarding the ownership structure and potential costs.
What Help to Buy Schemes Are Available for New Builds?
The prospect of owning a new build property is made even more appealing with the availability of government-backed Help to Buy schemes. These initiatives are designed to assist first-time buyers and existing homeowners in their journey towards purchasing a new build home. Let’s explore the various Help to Buy options tailored for new builds:
1. Equity Loan Scheme:
The Equity Loan Scheme is perhaps the most well-known Help to Buy option. It allows you to borrow a percentage of the property’s value from the government, interest-free for the first five years (or more in some cases). Here’s how it works:
Eligibility: This scheme is available to both first-time buyers and existing homeowners purchasing a new build home in England.
Deposit: You contribute a minimum deposit of 5% of the property’s value.
Government Loan: The government provides an equity loan of up to 20% (40% in London) of the property’s value.
Mortgage: You secure a mortgage for the remaining amount (75% or 55% in London).
Repayment: After the interest-free period ends, you’ll start paying interest on the equity loan. You can choose to repay the loan or sell the property to settle it.
2. Shared Ownership Scheme:
The Shared Ownership Scheme offers an affordable way to step onto the property ladder by allowing you to purchase a share of the property (usually between 25% and 75%) and pay rent on the remaining portion. Here’s what you need to know:
Eligibility: Available to first-time buyers and existing homeowners with a household income below a certain threshold.
Ownership: You purchase a share of the property with a mortgage and pay rent on the remaining share to the housing association or developer.
Staircasing: Over time, you can increase your ownership by buying additional shares, eventually leading to full ownership.
Selling: If you decide to sell, the housing association or developer usually has the right to find a buyer for the property.
3. ISA / Lifetime ISA:
The Help to Buy ISA and the Lifetime ISA are savings schemes that offer a government bonus to help boost your deposit. Here’s how they work:
Eligibility: Available to first-time buyers aged 18 and over.
Savings: You save money in the ISA, and the government adds a bonus of 25% of your savings, up to a certain limit.
Help to Buy ISA: This scheme is closed to new savers, but existing account holders can continue to benefit until November 2029.
Lifetime ISA: You can save up to £4,000 each year, and the government adds a 25% bonus. The funds can be used either for your first home purchase or for retirement.
These Help to Buy schemes provide a valuable helping hand to those aiming to purchase a new build property. However, it’s crucial to research the specific requirements, terms, and deadlines for each scheme. The government’s official Help to Buy website and financial advisors can offer detailed guidance on which scheme aligns best with your circumstances and homeownership goals.
What Mortgages Are Available for New Build Houses?
Securing the right mortgage for a new build is a crucial step. Fortunately, there are mortgage options specifically tailored to new builds, offering flexibility, competitive rates, and features that align with the unique nature of these properties. Let’s explore the mortgage choices available for your new build dream home:
1. New Build Mortgages:
New build mortgages are specifically designed to cater to the needs of those purchasing newly constructed properties. These mortgages often offer several advantages:
Tailored Terms: New build mortgages take into account the different stages of property development. For example, some lenders offer staged payments to align with the construction process.
Competitive Rates: Lenders recognise that new build properties often come with modern features, a higher EPC rating and lower maintenance costs. As a result, they may offer competitive interest rates to attract buyers.
Flexibility: Many new build mortgages provide flexibility in terms of deposit requirements and repayment options.
2. Fixed-Rate Mortgages:
A fixed-rate mortgage locks in your interest rate for a set period, usually between two and five years. This provides stability in your monthly repayments, making it easier to budget.
Predictable Payments: With a fixed-rate mortgage, you’ll know exactly how much you need to pay each month, regardless of changes in the wider market interest rates.
Security: If interest rates rise during your fixed-rate period, you’ll be protected from increased mortgage payments.
3. Tracker Mortgages:
Tracker mortgages have an interest rate that’s tied to the Bank of England’s base rate. As the base rate changes, your mortgage rate follows suit.
Potential for Lower Payments: If the base rate stays low, you could benefit from lower monthly payments compared to fixed-rate mortgages.
Risk of Increases: On the flip side, if the base rate rises, your mortgage payments will also increase.
4. Offset Mortgages:
An offset mortgage allows you to link your savings or current account to your mortgage. The balance in these linked accounts is subtracted from the outstanding mortgage amount before calculating the interest.
Interest Savings: By offsetting your savings against your mortgage debt, you can potentially reduce the interest you pay over the life of the mortgage.
Flexibility: You retain access to your savings, making it a flexible option for managing your finances.
5. Help to Buy Mortgages:
If you’re utilising a Help to Buy scheme, you can explore mortgages designed to complement these initiatives. These mortgages are often available at competitive rates and align with the specific terms of the scheme you’re using.
When considering mortgage options for your new build house, it’s essential to shop around, compare rates, and consult with a mortgage broker or financial advisor. They can guide you through the mortgage application process, ensuring you understand the terms, fees, and potential benefits of each type of mortgage. Remember that securing the right mortgage is a key component of turning your new build property into a cherished home.
Is Buying a New Build a Good Investment?
Investing in a new build property often entails a higher upfront cost due to its contemporary features and pristine condition. However, the key consideration is whether the property’s long-term value aligns with your investment objectives. Examining local property market trends and assessing the potential for future value growth is crucial.
New build properties are renowned for incorporating energy-efficient technologies that lead to reduced maintenance costs and lower utility bills. These features not only enhance the property’s appeal but can also contribute to its long-term investment value. Capital growth potential is a pivotal factor in property investment. Although new builds might experience an initial period of rapid growth due to their novelty, it’s essential to evaluate the area’s growth prospects, housing demand, and upcoming developments that could influence property values.
Location remains a decisive factor, just as it is for any property investment. Researching the neighbourhood’s amenities, schools, transportation links, and overall desirability is paramount. Properties located in sought-after areas generally have stronger investment potential.
For those considering new build properties as buy-to-let investments, calculating the potential rental yield is essential. This figure represents the annual rental income as a percentage of the property’s value. New builds may command higher rents due to their modern features, but it’s essential to factor in vacancy rates and ongoing management costs. The potential resale value and demand for the property upon sale should be part of your evaluation, too. New build properties often attract buyers seeking hassle-free, move-in-ready homes. However, competition from other new builds in the area should also be considered.
Prior to making a decision, comprehensive research is essential. Seek insights from property experts, financial advisors, and mortgage brokers who can provide tailored advice. Their guidance will ensure your decision aligns with your unique circumstances and long-term objectives.
In conclusion, whether a new build property proves to be a lucrative investment depends on your specific situation, financial goals, and risk tolerance. While they offer contemporary comforts and potential capital growth, they also carry considerations. Taking your time to weigh the pros and cons will help ensure that your investment aligns with your aspirations and leads to a rewarding investment venture
Questions to Ask When Buying a New Build
Finally, when speaking with the developer, there are a few questions you want the answers to before committing to a property:
- What is included in the purchase price?
- Are there any incentives or deals available?
- What warranties and guarantees come with the property?
- Can I visit the property during construction?
- What are the estimated completion and moving-in dates?
- Are there any estate or maintenance charges?
Knowing the answers to these questions will help you be sure you’re getting everything you want from probably the biggest purchase of your life!
Purchasing a new build can be an exciting journey towards your ideal home. Armed with the knowledge from this guide, you’re now better equipped to navigate the process confidently. If you’re ready to explore new build mortgages and turn your dream home into a reality, get in touch with our team of experts. We’re here to help you every step of the way on your journey to homeownership.
Remember, the world of new builds is full of possibilities, and with the right guidance, you’ll soon be settling into the modern, stylish haven you’ve always envisioned!