The withdrawal of low deposit mortgage deals and rising house prices has meant that it has never been harder for first-time buyers to get onto the housing ladder. But the relaunch of the Government’s Help to Buy loan, together with the Government’s pledge to build 300,000 new houses per year until the mid-20s, means that first-time buyers looking to get onto the property ladder have more of a chance by purchasing a new-build home.
New builds are not just popular with first-time buyers, however. They can be a great way for second-steppers to move up the property ladder and for downsizers to buy a property that needs little initial maintenance.
However, although there are many benefits to buying a new build there are also some downsides as well, which house buyers should consider. Here we look at the pros and cons of buying a new build.
One of the major attractions of buying a new build for first-time buyers is that they can do so through the Help to Buy Equity Loan scheme. Although the previous scheme was available to existing homeowners and first-time buyers, the Help to Buy Equity Loan scheme has been relaunched by the Government and is now only available to first-time buyers.
Under the new scheme, first-time buyers buying a new build property that is part of the scheme can borrow from the government up to 20% (40% in London) of the cost of the home. The buyer must pay a minimum of 5% deposit for the home and use a Help to Buy mortgage to cover the remaining cost of the property.
First-time buyers considering using a Help to Buy Loan should be aware that although the loan is interest-free for the first five years, and after this, interest fees are added to the loan at 1.75% and rise each year in April by the Consumer Price Index plus 2%. In addition to this, borrowers are charged a monthly management fee of £1 for the term of the loan.
New-build houses benefit from modern building requirements, which means that they are often much more energy-efficient than older properties. Having an energy-efficient home not only makes it more environmentally friendly, but also helps to cut down on monthly gas and electric repayments. Often, a new build will have an Energy Performance Certificate (EPCs) of A or B, whereas older properties tend to have lower ratings around D or E.
Another benefit of buying a new-build home is that it is usually built to a high specification. This means that homeowners can move straight into the property without having to renovate rooms, remodel kitchens or update bathrooms. In addition to this, many new builds have modern lifestyles in mind, for example many master bedrooms come with ensuite bathrooms.
New-build homes come with a warranty, with NHBC the most common, which typically last for 10 years. Normally, the warranty is split into two periods. The defects insurance period usually covers the first two years, then the structural insurance period covers the remaining eight years. Although the warranty will cover major problems to the property, many factors are not covered, and it is still vital that homeowners get good home insurance cover when they move into their property.
Often a new build home will be more expensive to buy than a similar older home – this is often known as the new-build premium. The reason for this is that as a new build, homeowners can move straight into the home without having to carry out extra work, for example changing flooring. In addition to this, many new builds do not have the ability to add value to the property – for example building extensions or loft conversions that homeowners can do with older properties.
New-build homes have a bad reputation for being poorly built. Although some homes have not been built to an acceptable standard, it is not the case that all new build homes are badly built. When looking at new build properties, house hunters should research the company that is building the home to see what past homes they have built and to what standard. There may be more support for homeowners coming as the Government has pledged to set up a New Home Ombudsman to help homeowners with complaints about new build properties, but as of yet this has not been established.
Another common complaint about new build homes is that rooms within the home are smaller than older homes and there is much less outdoor space. As well as this, many new build homes are built on estates, with homes overlooking one another, which does not provide the privacy some homeowners prefer. As such, those buying a new build should think about practicalities when viewing the home, for example whether it provides enough storage, if their furniture will fit into small rooms and if the outdoor space is adequate for their needs.
Over the last few years, there have been high profile cases of new-build homeowners who have purchased their house as a leasehold instead of a freehold and who have been unable to buy the freehold as they were first assured they would be able to do. As well as this, some leasehold homeowners have found that they have been tied into lease contracts in which the ground rent doubles, leaving them to face increasing ground rent payments and with properties they are unable to sell as many mortgage lenders won’t offer mortgages on properties with these contracts. The Government is set to ban ground rent on new build properties, as well as banning new-build houses being sold as leaseholds. In addition to this, there are suggestions that the Government will legislate to make it easier and cheaper for leaseholders to extend their lease.
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