Guide to Buying a New-Build
New-builds are brand new properties that have yet to be lived in. They have become increasingly popular over the years, especially amongst first-time buyers due to the many government schemes that can help them to buy a new-build home.
With no upward property chain, many buyers gravitate towards a new-build house as the buying process is often completed more quickly than a previously-owned property. However, if you’re buying off-plan, this may not necessarily be true as the house will still be under construction.
Compare My Move work with a range of property and removal experts to create helpful and accurate articles to help you through the moving process. In this guide, we’ll explain the process of buying a new-build house and list the various advantages and disadvantages that must be factored in before starting the transaction.
What is a New-Build House?
As the name suggests, a ‘new-build’ is a new flat or house that was built within the past 2 years that hasn’t previously been lived in. Some mortgage lenders will have different definitions of what qualifies as a ‘new-build’ and so it’s important you discuss this with them before applying for a mortgage.
There may be some ‘new’ properties that have already been owned by previous occupants, but, typically, a new-build refers to a home that is being sold by a developer or builder. Most new-builds have never been lived in. According to Full Fact, more than 741,920 new homes were built in England throughout 2014/15 and 2018/19.
For many Help to Buy schemes, a property can be a few years old but, as long as it hasn’t been previously owned, it can still be classed as a new-build. This may also be a possibility if the building was first rented by the developer but not actually sold.
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The Process of Buying a New-Build
1. Get Your Finances in order
Before finding the perfect new-build property, you should first speak to a mortgage broker and discuss how much you might be able to borrow. You can discuss the different mortgage products that may be available to you and what you can realistically afford. This will then provide you with an accurate budget when viewing developments.
It would also be wise to have a mortgage agreement in principle (AIP) if possible, especially if you’re a first-time buyer. This document will prove to the developer that you can afford the home.
2. Research Developments
Next, it’s time to go property hunting. Research the different developments within the area you want to move to and check if any of them are participating in the Help to Buy Equity Loan scheme. Thoroughly research the local areas as well as the actual developer and their previous work.
Ensure you have a clear and realistic price range in mind and visit the new-build developments in person before deciding. You should be taken around one of the show homes which should hopefully replicate the property you’re interested in. Don’t forget to ask questions about the property and what would be included in the sale.
3. Make an Offer and Reserve the Property
Once you’ve found a property you’re happy with and your finances are all in order, you can then make an offer. Remember that this doesn’t necessarily have to be the asking price. You are still able to negotiate the house price.
If your offer is accepted, the next step is to pay the reservation fee and secure the property. This fee often ranges from £500 to £2,000 and will mean the home is reserved for a 28-day period. This price will usually be deducted from the purchase price later down the line but it will be non-refundable should you pull out of the sale.
4. Work With Your Conveyancer
By now, you should’ve found a licensed conveyancer or conveyancing solicitor to deal with the legal side of the transaction. As the process is slightly different, it would be wise to find a conveyancer who has experience of dealing with new-build houses. If they are experienced, they will check that the developer has the correct planning permission and that the site has access to all the right services.
The developer or builder may recommend a solicitor to you but you’re under no obligation to go with their recommendation. In fact, it’s better that you don’t. Finding your own independent conveyancer will ensure there is not a conflict of interests.
Your conveyancer will explain any legal jargon and help you work through the contract. They will also negotiate the date you can get your keys and tell you when you need to complete the sale. Whilst this is going on, you should begin the process of applying for a mortgage.
5. Exchange Contracts
When buying a new-build, you’ll exchange contracts months before you’re able to move in. During this stage, your solicitor should check the terms of the contract, check all relevant documents such as the planning documents and title of the property and clarify everything with the developer’s solicitor. Through your conveyancer, you will also be required to pay the deposit.
6. Make a Snagging List
Before moving in, you should walk through the property and make a snagging list to ensure any issues or defects are listed and identified. This means they can be fixed by the developer as early as possible.
7. Wait for Completion
Once the property has been built and the purchase is complete, you can then organise a date to receive the keys. You should begin comparing removal companies to ensure you’re ready for your moving date.
What’s Included When Buying a New-Build?
One of the biggest benefits of buying a new-build is that many of the fixtures and fittings are often included in the price. This then saves you a lot of money in the future once you begin to settle in, making it a home.
However, what is exactly included often depends on the developer. Some may include larger appliances like a washing machine or dishwasher, while others might include flooring and carpets. Always read the contract carefully before signing to ensure there are no misunderstandings about what is included in the sale.
It’s also important to note that recent building rules and regulations mean that there are specific standards developers must adhere to, to ensure the home is as energy-efficient as possible. This should help you save on your future energy bills. Common features include double or triple-glazed windows, energy-efficient heating, and insulated walls and roofs.
A new build warranty should also be included in the purchase, ensuring you have 10-years of insurance in case any defects with the property are discovered However, these types of warranties do not cover everything so you will also need your own home insurance policy.
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What Schemes Are Available for New-Build Houses?
Over the years the government has run various schemes to help people buy new build homes. The Help to Buy Equity Loan scheme was launched in 2013 and is available in England, Scotland and Wales, but not Northern Ireland.
Through the Help to Buy Equity Loan, the government will lend you 20% of the property’s value (40% when buying in London). You will not have to pay interest on this loan for 5 years. You then put down a 5% deposit for the property, and take out a mortgage for the remaining 75% of its value.
According to the Ministry of Housing, Communities & Local Government, between its launch in April 2013 and March 2020, approximately 272,852 properties were bought using the Help to Buy Equity Loan scheme. Around 82% of these purchases were first-time buyers.
Help to Buy: Shared Ownership is another option. This allows you to buy part of the home whilst paying rent on the rest. This scheme will require a deposit of around 5 to 10%. You can buy more shares in the property later on through a process known as 'staircasing'. However, if you do not staircase to 100% ownership, it can be difficult to sell a Shared Ownership property.
Can You Negotiate Prices on a New-Build House?
When a property is being sold, even if it’s still in the process of being built, it will always be marketed with an asking price. However, you can still negotiate on this.
Negotiations won’t always be successful and it often depends on where the property is located, the level of demand for the area and how far along the development is. Some developers may be open to negotiations if the development is fairly early on, as they may require funding to continue. However, if the site is near completion, there may be limited interest, making you a far more attractive buyer.
A successful negotiation always requires research. No matter what stage the development is at, you should first research the sale prices of similar properties within the area. It would always be worth asking the developer or builder about previous properties they’ve worked on as a comparison.
You should never pay more than what you think the property is worth or what you can realistically afford. If the negotiation is unsuccessful, you could try saving money elsewhere by asking the developer to cover the stamp duty or to add in extras like furniture for free.
Generally, the process of obtaining a mortgage is the same regardless of whether the property has been previously owned or is newly built. However, there are a few factors that could be made more difficult when it comes to applying for a new-build mortgage.
Some mortgage lenders will be a lot stricter on the amount they’re willing to lend on new-build homes to protect themselves from the eventual devaluation of the property. The loan-to-value (LTV) ratio is also often tiered for new-build mortgages, with lenders loaning less for a new-build flat than a house. For example, you could be restricted to borrowing 85% of the value of a new-build house but 75% on a new-build flat.
Timing is also an issue with new-build mortgages, especially if you’re buying off-plan. Most mortgage offers tend to be valid for 6 months - this could be an issue if your home hasn’t been fully built yet. Once the property has been built, you could find yourself stuck, having paid the reservation fee but with a now-expired mortgage offer. Some lenders may offer an extension, but this often means they will be required to reassess your application.
There are some lenders who will be able to make a mortgage offer that lasts for a longer period of time, helping those looking to purchase new-build properties. However, this isn’t always the case so it’s important you work with an independent mortgage broker who can advise you on the best lenders and deals for your situation.
To help with the purchase of a new-build property, you could also research the Help to Buy Equity Loan or see if you qualify for Shared Ownership schemes.
Advantages and Disadvantages of Buying a New-Build
There’s a lot to think about when deciding whether to purchase a new-build property. To help you decide and make an informed decision, we’ve listed a number of advantages and disadvantages to think about in the table below:
New-builds often come with a 10-year NHBC warranty.
Off-plan homes aren’t always completed on time.
If you buy off-plan, you may be able to choose some of the fixtures to personalise the home.
As everything will be new, you may have teething problems with the home e.g. issues with the broadband or heating.
There are a number of government schemes available to help buyers. The Help to Buy Equity Loan is exclusively for new-build homes.
The plans or designs may not accurately represent how the building looks once complete.
New-build properties are always built to the latest specifications and tend to be more energy-efficient.
The other homes within the site may still be under construction once you’ve moved in, causing disruptions.
With a shorter property chain, it’s often a quicker process.
You may find a number of defects after the snagging list is complete.
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Questions to Ask When Buying a New-Build
1. What Other Developments Have The Developers Worked On?
Many new build homes will be bought off-plan, meaning you'll be buying it unfinished and based on computer-drawn images. Because of this, it’s important to see evidence and reviews of the developer's work. If another development is nearby, you could go and physically see its work. Websites like that of the House Builders Federation contain data concerning the quality of property builders and their previous work. You could also do a Google search to read reviews by a developer’s previous customers.
2. What Does the New Home Warranty Include?
There are three main providers of new home warranties in the UK. By far the most common is the National House Building Council (NHBC), while there is also the Local Authority Building Control Warranty (LABC) and Premier Guarantee. All operate under the government’s Consumer Code for Home Builders.
The warranties often provide homebuyers with peace of mind but it’s important to know what’s included and why. When considering a new build purchase, ask questions such as what does the warranty include and how long it will last - it's usually 10 years but there are exceptions. You should also ask if there is a 'snagging provision' in your contract to ensure you’re able to get any minor issues fixed with your building developer.
Warranties are often viewed as simply insurance policies as you have to make a claim, with pay-outs not always guaranteed. Many warranties may include small print that can be used by the warranty firm or the developer to avoid paying for or carrying out work. Don’t forget to read the fine print with any contract you come in contact with.
3. Is the Property Leasehold or Freehold?
It’s vital you check whether the property is leasehold or freehold. Although there are some exceptions, flats will usually be leasehold whilst houses will be freehold. But always check with the developer first. If you're thinking of buying a leasehold property, then you’ll have a lease from the freeholder to use the property for a number of years. This amount of time for new builds is typically between 90 and 999 years.
The majority of flats and apartments are leasehold properties. The developer should clearly state this. A leasehold property often comes with extra charges and limitations on what you can do to, or in, the property. If the property seems right for you, ask your solicitor and the developer to talk you through the terms of the lease.
4. What Other Costs Come With the Lease?
From maintenance costs to home insurance, there are many costs of buying a house. If you’re not prepared for the fees to come, you may go over budget. Other costs you’ll have to consider are service charges, ground rents and conveyancing costs. Find out as much as possible before you commit to buying the property. Ask what costs are included, how you’ll need to pay them and most importantly, when.
If you buy a leasehold property, you may also have to pay into a reserve fund which will be set up to ensure there’s money for any future repairs or maintenance. It’s also important to research whether there will be exit fees or other charges attached to your lease.
5. Who Do I Contact if Something is Wrong With the Property?
When buying a new-build property, you should carry out a snagging inspection to detect any issues that can be solved before the property’s completion. Proving the importance of a snagging list, the Home Builders Federation's latest satisfaction surveys have shown that 99% of new-build homeowners reported 'snags' or 'defects' to their builder after moving in.
Many new-builds will need time to settle and issues may begin to appear over time. To ensure you’re prepared, it’s important to ask who you should report to if there are problems with the property. You should also ask about the length of your warranty and what would happen if you got a private workman to fix any damage.
6. Are there any restrictive covenants?
Before committing to the purchase, you should ask if there are any limitations about changing the property. This is because some homes come with restrictive covenants. These might be in relation to flooring, pets, building work or even painting the walls. Always ask for permission from your freeholder before altering the property and read your contract thoroughly before signing.
If your property is part of a larger development, there may be restrictive covenants set out by the property builders to prevent you from changing the appearance of the home. These restrictions could include extensions, CCTV, and anything that may disrupt the uniform appearance of the property and surrounding buildings.
7. What Type of Foundations Were Used?
When buying a house, whether a new build or pre-owned property, you need to consider how structurally-sound it is. Will it last? Are the foundations stable? What were they made of? These are all questions you can ask the developer or site manager.
If the ground conditions are good, trench fill or strip foundations may have been used. These are the typical solutions and mean the ground conditions are strong enough to hold the property without much aid.
If piled foundations have been used, they will likely have been chosen to transfer the loading of the property through unsuitable ground. This will also secure and stabilise your property but means the ground needed aid. This type of foundation could affect your buildings insurance cost. You may wish to hire a surveyor to assess the new-build property, assuming it is completed and not an off-plan purchase.
8. How Much is the Council Tax?
Part of planning your budget for a new home includes factoring in the local council tax. Ask what band the property will come under and check council tax bands for your local authority. The valuation bands are based on the price the property would have sold for back in April 1991 for England and Scotland. In Wales, the date is 1st April 2003.
9. Will You Put a Long Stop Completion Date in?
If you’re buying off-plan, it’s possible that your property might not be completed as quickly as you first thought. As some mortgage lenders will only give you a mortgage offer for a maximum of 6 months, a delay in your property could mean you’ll be required to reapply for a mortgage. If your personal circumstances have changed during this time (e.g. a new job), this could then affect your application and your ability to borrow.
Before signing the contract, you should first ask the developer to add a long stop completion date. This will ensure that you’re entitled to compensation should the property not be complete by the original deadline.
10. Ask About the Local Area
When buying a new-build property, chances are that the development wasn’t there a few years or even months ago, meaning you won’t be familiar with the immediate surrounding area. It’s important to ask about the local amenities and to do your own research as well:
- Where are the nearest schools?
- Where’s the nearest bus stop or train station?
- How far away are the shops?
- Where’s the nearest GP surgery?
These are all questions that can help you decide where to live and will need answering before you decide to move in. The answers will impact your daily life so it’s important to think about the necessities and what needs to be closest to you and your family.
Learn More About New Builds
This is the first article in our guide on new build homes. Now that you know the process of buying a new build property, it's time to determine whether a previously owned home or a new development would be better suited to you and your requirements. To find out more read buying a new build vs old house: which is better?