It’s hard enough buying a ‘pre-loved’ home, negotiating the minefield of mortgages and conveyancing, but if you buy a brand-new property from a developer, there are even more hoops to jump through. Here’s our guide to getting it right.
You could be forgiven for thinking twice about buying a new-build home, as in recent months they have had plenty of bad press.
There have been widespread complaints about developers selling new-build houses leasehold, rather than freehold. This has led to a government consultation about banning new-build houses that are leasehold in future developments, as well as limiting the amount homeowners will pay in ground rent.
Meanwhile, recent analysis by corporate finance specialist Stockdale Securities has found that developers have been charging as much as 5% more for new-build homes that are bought with the government’s Help to Buy equity loan scheme. However, the scheme still offers first-time buyers in England and Wales the best chance of getting a foothold on the property ladder. Available to home movers too, it offers up to 20% off the cost of a new-build home with a purchase price of up to £600,000 in England (£300,000 in Wales), with just a 5% deposit; the loan is interest-free for the first five years.
London Help to Buy provides an equity loan of up to 40% for buyers with a 5% deposit.
There have been reports that the Help to Buy Equity Loan scheme will end soon. However, the government has confirmed that it will continue until at least 2021 and has recently announced that it will invest a further £10 billion into the scheme So, if you are considering buying a new-build home with government help, start thinking about it now.
A brand-new home will also be energy-efficient – according to the House Builders Federation, new homes in the UK are around 50% cheaper to run than the equivalent Victorian house. This could result in an annual saving of £440 for a one-bedroom ground-floor flat and £1,410 for a four-bedroom detached house.
However, there are pitfalls to avoid – which can range from buying early and spending months living on a building site to ‘snagging’ problems once you’ve moved in.
Here’s our guide to how to pick the right development and secure a top deal.
Pick the right developer
An easy way to find all the new developments available in your chosen area is to visit property portal Zoopla, key in your chosen postcode and search for ‘new homes’ within a few miles’ radius.
To narrow it down further and find out more about how consumers rate some of the UK’s major house builders, it is worth reading the House Builders Federation’s annual customer satisfaction survey, which you can find on its website at Hbf.co.uk.
More than 52,000 home buyers completed its latest survey, which covers the 12 months from October 2015 to September 2016. House builders are given a star rating and you can see how many people have voted for them.
About 15 house builders are five-star rated, including household names such as Barratt Developments, Bellway Homes and McCarthy & Stone. But it’s worth noting that some well-known developers didn’t perform so well – for example, Bovis Homes only received two stars.
Carefully time your purchase
Developers can be more willing to negotiate as they approach their financial end of year or half year – when their results will be published to shareholders, and managers will be keen to meet their targets and enjoy big bonuses.
To find out half-year and end-of-year dates for the main house builders, visit advice site Brand-newhomes.co.uk.
Other good times to negotiate are at the start of the development when builders are keen to make that first sale and when there are just a handful of properties left and the builder is keen to move on to his next scheme.
Sara Ransom, managing director of Stacks London Property Search, explains: “Developers sometimes sell off their compromised phases first – maybe the ones near a road or with a less attractive outlook. But the first and last properties on a development are the ones the developer is most anxious to sell and are where the best deals are often to be found.
However, there are downside to an early purchase. “Buying at the early stages of a development may mean that you find yourself living in a building site for many years, and the constant completion of building phases will make it very difficult to sell, should you wish to,” she adds.
Compare with pre-owned prices
It’s not unusual for buyers to pay a premium for a new-build home. According to the latest Land Registry’s Price Paid Data for England and Wales, in 2016, the average sold price for older stock was £276,809, while the average sold price for a new-build home was £328,428.
But the good news is that if you live in an area where there is a high concentration of new-build developments, chances are that your new-build home will go up in value. According to research by Zoopla, areas with a concentration of 25% or more new-builds have grown in value on average by 29.7% over the past five years – 6% above than the national average property price growth rate of 23.6% over that period.
Ms Ransom adds: “Check the price per square foot and compare it with the resale market, so you understand the extent of any premium you’re paying. New homes can be incredibly small, but it’s easy for the eye to be deceived when you’re looking at plans, or a show house, either because there’s no furniture at all, or because furniture is minimal and specially designed and arranged to make the rooms look bigger.
“Help yourself visualise the space by comparing rooms’ sizes to space you can understand and see. You might want to draw your own plan of individual rooms and position cut-outs of furniture to see how the space will work.”
Should you buy off plan?
It can be tempting to buy off plan if you can negotiate a good discount early on, before potential buyers have a show home to visit and you will have the pick of the best plots in the development. You’ll also have more of a chance to choose fixtures and fittings to customise your new home.
Philip Waller, a retired construction manager who runs Brand-newhomes.co.uk, says: “Housebuilders love to have some early plots sold to show other buyers there is interest. House prices generally go up throughout the site, so you can be ‘in profit’ before you even pay for the house.”
But remember, you will be taking a risk – not only is there the worry about whether the building will be designed and built to a high standard, you could also end up living on a building site until the final plot is sold.
However, Mr Waller suggests that the financial risks are far more worrying. “Your initial deposit will be tied up for months or even years while your home is being built and it will be earning no interest. Don’t pay a deposit of more than 10% and make sure it is protected in an insurance scheme, such as the NHBC’s Buildmark scheme.
“Builders may not start building when they say they will or complete on the date agreed and mortgage offers may be withdrawn – most are only valid for six months.”
“You could end up buying a new home for more than it is worth if there is a sudden market crash, meaning possible negative equity,” he adds.
Check the small print
The bitter complaints from some homeowners of new-builds about unfair terms that developers can impose highlights the importance of reading the small print – and of employing a good lawyer or conveyancer.
HomeOwners Alliance's Paula Higgins says: “Most developers will recommend using their solicitor because they want to move fast. The developer’s solicitor will have already carried out certain checks on the development and the land, and if the buyer were to use the same company this would speed up the sale.
“While this may seem a smart option, we would always advise finding your own conveyancing solicitor. Not only will they be acting in your favour and not the developers, but having another firm conduct the necessary checks will ensure things aren’t missed. When choosing a solicitor, make sure you find someone with experience in new-build sales.”
Your mortgage provider will want to see evidence that the new-build property has been granted a warranty that offers protection should defects be discovered within 10 years of completion – as well as ensuring that the builder has complied with building regulations.
Warranties, such as the NHBC’s Buildmark scheme, cover two specific periods. The first two years will cover minor defects as well as structural issues, while the last eight years will only cover major issues with the structure of the building.
As the government is consulting about banning leaseholds for new-build houses, you may want to think twice about this type of tenure, and also look carefully into whether ground rent charges will escalate over any leasehold period.
Top 10 local authorities for building new homes
Major residential planning applications granted
New build property price increase (YoY)
New build value compare to existing homes
Monthly Transactions compared to average for a local authority
City of Bristol
East Riding of Yorkshire
Source: Argyll Property Partners, based on data sourced from the ONS, Land Registry and Department for Communities & Local Government. September 2017
Spot ‘snagging’ issues
You’ll want to make sure you don’t discover that your new home is littered with ‘snags’ or defects once the builders have gone. While you’re likely to find some problems once you’ve moved in, ironing out as many as possible before exchanging or completing contracts will make life less stressful.
In the 2017 House Builders Federation’s annual customer satisfaction report, almost a third (31%) of the 52,000 participants reported between one and five problems to their builder, while 25% reported 16 or more defects, and that was just in the first eight weeks since completion.
Given that some defects – such as cracks or leaks – may not appear for several months, it shows the importance of having an agreement in place for the developer to fix these defects as soon as possible.
Aim to arrange for a snagging survey to be carried out before completion, even though, under the terms of your warranty, cosmetic defects will be covered in the first two years after your completion date.
If you’re worried that you won’t be able to spot potential defects, then it’s worth shopping around to find a specialist snagging company to draw up a list for you. As a price guide, snagging specialist New Build Inspections (Newbuildinspections.com), charges from £299 for a studio flat to £499 for a five-bedroom house.
Ms Higgins adds: “We’d always advise hiring a specialist as they’re much more likely to pick up on issues that the average buyer may miss and it makes it more difficult for your developer to dismiss your issues.”
Top tip: Get ready to negotiate
Before you approach the developer, it’s worth checking the sold prices of other properties in the development on property portals such as Rightmove and Zoopla, and the purchase date. This will give you a clearer idea of what you should expect to pay, but don’t assume that you don’t have some room to manouevre.
Paula Higgins, chief executive of consumer group the HomeOwners Alliance, says: “Don’t feel as though you are unable to negotiate on price. The market is changing and don’t be pressurised to put down a hefty deposit – £1,000 is not uncommon – that you won’t get back if you change your mind.”
She adds: “Many people believe because they’re buying the home brand new that they have no choice but to pay the quoted price, but that’s not the case. Offer a lower amount if you think it’s fair – particularly if there are only a few properties left unsold on the development. The developer very often wants to get on with its next project, so may be willing to make a deal to shift the properties.”
Top tip: Look out for ‘freebies’
Gone are the days when it was common practice for developers to entice buyers with promises to pay the stamp duty or legal fees or to offer free furnishings. However, you can still find the occasional offer – though only consider it on a property that you are keen to buy anyhow.
Mr Waller explains: “Now Help to Buy is being marketed by most housebuilders as an incentive, the usual ones are becoming rare. Housebuilders don’t need to try too hard with discounts, as there is a shortage of new homes.
“Incentives such as turfing the rear garden or ‘free’ carpets can be used as part of the sales adviser’s ‘negotiables’ with discounts of up to 3% – but they are rarer in the current market.”
Top tip: Run through a checklist
If you have invested all your spare cash in your new home and prefer to do the snagging list yourself, the NHBC has a useful checklist. Visit Nhbc.co.uk and search for New Homes Checklist.