The disadvantages to buying a new build property
Posted on 24th August 2022 at 13:26
The disadvantages to buying a new build property
Timescale
As with any building work, delays happen for many reasons whether that be lack of materials or
manpower. New build properties are no different. This has become more prevalent since covid and Brexit
with many builders struggling to source building materials and shortage of good labour. As a result, the
wait times for new build properties to be compelted is growing longer and longer, causing delays in
completions and chains to break as buyers lose patience and mortgage offers expire.
Higher purchase price
Property prices in the UK have seen massive growth in the last 2 years mainly due to buyer demand, but
new build properties more so when you factor in the rising costs of materials as builders struggle to
source materials and in the increasing cost to have those materials shipped to the UK. This increased
cost is passed onto buyers as builders must maintain profit margins. The warranty builders offer also
comes at a cost which is ‘baked into’ the purchase price. Rather than charge you an additional fee for the
warranty they include it in the purchase price, increasing the purchase price of new build properties.
Lender criteria
Due to the increased purchase price because of the warranty and additional cost for the incentives
offered many lenders limited the loan to value (size of the mortgage compared to the purchase price) to
create an equity buffer in case of a price drop. Many lenders cap lending to 85% loan to value, with some
lending 90%. This can make buying a new build property more difficult for those who don’t have a large
deposit and don’t wish to use a government scheme like Help to Buy.
Smaller properties
The UK has had a housing shortage for many years, as the demand for homes far exceeds the number
of properties built each year. As a result, new home builders are squeezing more and more homes into
the land they have available, making them smaller with less surrounding land to maximise the amount of
properties they can build to help with demand but also to maximise the profit they can make from each
plot they sell.
Additional legal work & Costs
When buying any property, you need a solicitor to handle the legal work of making you the new legal
owner. But when buying a new build property there is additional legal work required which will in turn
incur a higher cost to the buyer for this. This is due to the property needing to be registered with the land
registry and new legal documents being drafted. Whereas a pre-owned proeprty already has these
docuemnts registered, they just need transferring from one owner to another. If you buy a property using
the Help to Buy scheme this will also incur an additional cost as your solicitor now has to work with
another party to help complete your purchase. In a standard preowned purchase, your solicitor works
with you and the seller. In a new build purchase your solicitor needs to work with you, the builder, and the
Help to Buy organisation, increasing their workload and communication.
Management costs
When buying a leasehold property, you are buying the lease from the freeholder. You are buying the right
to use and live in that property as determined by the freeholder. Each year you will pay the freeholder a
fee for doing this. This can range from building to building but this is a cost you should factor into your
annual bills as a homeowner. If you buy a flat for example you will have ground rent to the freeholder and
also a service charges each year to cover the general upkeep of the building for the shared services you
enjoy such as the communal areas and lifts.
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