New-build homes New-build homes
Choosing between new-build homes and older properties can be tricky. Here, we explain the pros and cons of buying a new-build property and explain what buying a new-build means for your mortgage application.
Due to the national property shortage there's a big focus on new-build homes at the moment, with the government pledging to build a million more in the next five years.
The government is heavily incentivising buying new-build homes, too. You can buy a new home with a deposit of just 5% using the Help to Buy equity loan scheme, and if you're a first-time buyer, the upcoming Starter Homes Initiative will offer discounts of 20% on new homes.
However, there are some disadvantages to buying new-build homes, including the fact that it can sometimes be more difficult to get a mortgage.
- For expert, independent advice on getting a mortgage to suit your personal circumstances, whether it's for a new-build or older property, call Which? Mortgage Advisers on 0808 252 7987
Getting a mortgage for a new-build home can sometimes be harder than for an older property.
As part of the hangover from the credit crunch, some lenders put stricter limits on the maximum percentage they'll offer on new-build homes. You might be restricted to borrowing 85% of the value of a house, or 75% on a flat, while with an older property lenders may be willing to loan a bigger percentage.
Timing can also be an issue. Mortgage offers tend to be valid for six months, which can cause a problem if you're buying a home that hasn't been built yet (see buying off-plan) and the completion date is further in the future. Some lenders will consider extending their offers, but this is often subject to reassessing your application.
A few lenders offer products with longer validity periods for new-build homes, but these are by no means the norm. An impartial mortgage broker will be able to advise you on this - you can call Which? Mortgage Advisers on 0808 252 7987 for a free, no-obligation consultation if you'd like some help.
Pros and cons of buying new-build homes
|Advantages of buying new-build homes||Disadvantages of buying new-build homes|
|Guarantees: new-build homes come with a 10-year NHBC warranty covering structural defects. Most developers also provide their own two-year warranty.||Delays: if there's a hold-up during construction, your mortgage offer could expire.|
|Specification: new homes are built to the latest specifications, so major repairs should be unnecessary for the first few years. They tend to be more energy-efficient, too, so you could benefit from lower utility bills.||Defects: not all problems will show up in a snagging survey, and some developers have come under fire for poor after-sales service.|
|Personalisation: if you buy off-plan, you might be able to choose your fixtures and finishes. This is great if you're attracted by the 'blank canvas' element of buying new-build.||Risk: plans and brochures don't always give a clear idea of what the home will actually look like when it's built.|
|Incentives: the government's Help to Buy equity loan scheme and Starter Homes Initiative are only available on new homes.||Size: the rooms in new-build homes are often smaller than those in older properties, so you'll need to make sure your belongings will fit.|
|Ease of purchase: there's no upward chain to contend with when you buy a new-build home.||Disruption: if you're one of the first to move in, you could find yourself living on a building site while the rest of the work is completed.|
How to buy a new-build home: step-by-step guide
- Find a suitable development. Research the area, the local amenities and the developer's track record.
- Seek guidance from a mortgage adviser about how much you might be able to borrow.
- Visit the show home or marketing suite and choose a property. Pay a reservation fee.
- Employ a conveyancer to deal with the legal side of your house purchase.
- Arrange a mortgage, and wait while your lender has the property independently valued.
- Exchange contracts and pay your deposit.
- Before you move in, arrange to have a snagging survey conducted.
- Get ready for both the short stop date (when the developer expects to finish work) and long stop date (the date the home has to be completed by).
Conducting a snagging survey on a new-build home
Before moving into your new home, you should get a snagging survey done to identify any problems.
A snagging survey will outline different types of defects, from bad water pressure to dodgy fixtures. While there are some horror stories out there, the majority of snags tend to be cosmetic and can be easily fixed.
You can conduct a snagging survey yourself, or spend anything up to a few hundred pounds (depending on the size of your home) to get the professionals in. Given the amount of money at stake when buying a home, we'd recommend getting it done professionally.
Having said that, some defects might not come to light until you move in. During the first few months, it's useful to keep a list of any issues that arise and stay in regular contact with the developer.
- If you need help dealing with problems in a new-build home, you can find out where you stand by checking out our guide on the Which? Consumer Rights website.
Schemes to help with buying new-build homes
Around 120,000 properties have been bought using the government's Help to Buy scheme, with new-build homes making up around half of this number.
A Help to Buy equity loan can only be used to buy a new-build home, while Help to Buy mortgage guarantees are available on both new homes and older properties. The new London Help to Buy scheme, meanwhile, is set to be launched in April 2016 and will apply exclusively to new-build homes.
As part of its Starter Homes Initiative, the government claims it will build 400,000 new homes, which will be sold at a 20% discount to first-time buyers under the age of 40. The first homes are likely to be built from 2017.
Shared ownership could be an option if you can't afford to buy a new-build home outright.
Using part exchange to buy new-build homes
Some house builders run part exchange (PX) schemes, which allow buyers to purchase a new-build home and use their current property as part-payment.
While part exchange schemes remove the hassle of selling your home the traditional way, there are disadvantages.
Some developers will offer below the market value, so you should always have your own valuations done by local estate agents before agreeing to anything.
Also, the eligibility criteria can be strict - sometimes you'll only be able to use part exchange to fund up to 70% of the purchase price of your new home. For example, if the developer offered £200,000 off the asking price in return for your current property, the price of the new-build home you were buying would need to be at least £285,000.
Find out more: our guide will help you answer the question, how much is my house worth?
- Help to Buy Isa video guide - top up your house deposit with government money
- Moving house: step-by-step guide - we explain the process and how long it all takes
- Mortgage reviews - customers rate the major mortgage lenders
Your home may be repossessed if you do not keep up repayments on your mortgage.
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