A guide to buying a new-build home

All you need to know about buying a new-build home

As the name suggests, a new-build property is one that’s brand new and has never been lived in.

The Government has set a target of 300,000 new homes being built every year by the mid-2020s, although it’s well publicised that construction figures currently fall well below that.

In fact, research by one property developer has suggested building figures won’t approach anything like 300,000 new-builds a year until much later this decade. However, the emphasis remains on building new homes to try and tackle a national property shortage.

New build homes can be a great option whether you’re a first time buyer, have a growing family or you’re ‘right sizing’ later in life.

Why buy a new-build?

New build homes are appealing to home buyers for several reasons, particularly the fact they are the first to live in the property.

If you’re buying off-plan – before the property has been built – you may even be able to influence certain aspects of the design. Buyers often see a new property as a ‘blank canvas’ and some developers will give you the option to choose fixtures and fittings to tailor the interior to your own taste.

And once you’ve decorated, repairs and redecoration costs should be minimal for the first few years.

New properties usually come with guarantees. The most common is the National House Building Council (NHBC) 10-year warranty, but other companies provide warranties and insurance for new homes, such as Local Authority Building Control (LABC), which offers warranty schemes not only to homeowners but self-builders, housing associations as well as builders and developers. Most developers provide their own two-year warranty.

Lower running costs and bills

The UK has made a legally-binding commitment to net-zero carbon emissions by 2050, and the government has said all new homes are required to be highly energy-efficient, with low carbon heating, and be zero carbon ready by 2025.

New homes are expected to produce about a third lower carbon emissions compared to older housing stock, so if the new-build is constructed to the correct standard, homeowners should expect lower running costs and energy bills.

Data from Energy Performance Certificates (EPC) shows more than 80% of new homes have the highest A or B ratings. That compares to just over 2% of existing properties. With better EPC ratings, it opens up the option of green mortgages which can offer cheaper rates.

Chorley Building Society offers exisiting mortgage customers a discount on additional borrowing for home improvements, if at least 50% of the improvements carried out make the home ‘greener.’  For details, please visit our Opens in a new tab Additional Borrowing page

A great way of getting on the property ladder

For many first-time buyers a new build home is the only way they can get onto the property ladder. That’s because some homebuying support schemes, such as Help to Buy and shared ownership, are only available on the purchase of a new-build home.

The Government’s Help to Buy equity loan scheme is designed to help those struggling to save for a deposit to get on the housing ladder in England. It offers an equity loan, where the government lends a first-time buyer money that is put towards the cost of buying a newly-built home.

There are different price caps for different regions and the house must be the buyer’s main residence. The loan cannot be used to purchase a buy to let property.

How the scheme works:

• Step 1 – The buyer(s) must have a deposit of at least 5% of the property’s value
• Step 2 – The government lends up to 20% of the property’s value (40% in London) as an equity loan
• Step 3: The buyer(s) take out a mortgage on the rest of the property’s value.

Chorley Building Society was one of the first lenders in the UK to offer the First Homes mortgage scheme – which enables first-time buyers in England to buy a new-build home at a discount of 30% of the purchase price – putting it at the forefront of support for the first-time market.

Beware though, some developers might try to upsell the extras, so do some price comparisons to ensure you’re not paying over the odds.

That position has been further strengthened by its support for the Discount Market Scheme (DMS). This is a low cost ownership product where a new-build property built by a participating local council is purchased at a discounted price to help low and middle earners.

It allows the purchaser to own 100% of the property but at a reduced price. The discount, usually 20 per cent, remains with the property throughout all subsequent sales, and the property can only be sold to a person who fits the eligibility criteria.

Not all councils offer the scheme and those that do set the eligibility criteria, which means it can vary from council to council.

Typically, the buyer cannot have an interest in another property, must usually have a local connection to the area where the home is situated and there is usually a household earnings threshold. For more details speak to the local council in the area concerned to enquire about whether it offers DMS and the specific eligibility criteria.

Meanwhile, the First Homes mortgage scheme is aimed at supporting first-time buyers to stay in their local areas, rather than having to relocate due to high property costs. The scheme specifically aims to support key workers and ‘frontline’ workers such as supermarket employees.

The discount is passed on with the sale of the property to future first-time buyers, which means that the home will always be sold below market value.

First Homes is a relatively new initiative and anyone interested will need to carry out their own research to find out if there are any participating builders in the area where buyers are looking to purchase.  For more information on the scheme visit https://www.gov.uk/first-homes-scheme

Shared Ownership is another option for buyers who can’t afford the mortgage on the full value of a property.

It offers first-time buyers (and those who have previously owned a home but cannot afford to buy now), the chance to buy a share of a property (between 10% and 75% of its value) and pay rent on the remaining share.

The purchaser pays a mortgage on their share of the property, and then pays rent to a housing association for the remaining share. As the purchaser only requires a mortgage for their part share, the amount needed for a deposit is usually lower.

Buyers can also ‘staircase’ on a shared ownership property, which means they can increase the share of the property they own, until they own all of it. There are additional costs associated with ‘staircasing’ including a valuation, solicitor’s fees and stamp duty, so you need to bear this in mind when considering this.

At Chorley Building Society we are pleased to support those looking to use the Government help schemes to purchase a new build home.  We offer a help to buy mortgage and remortgage, a First Homes mortgage, the Discount Mortgage Scheme mortgage and also Shared Ownership .  Full details can be found here LINK

The process of buying a new-build

With all the different loan schemes and mortgages out there, it’s important to get your finances in order by seeking guidance from a qualified mortgage advisor.

It may be helpful to have a decision in principle/mortgage agreement in principle (DIP/AIP) before you start house-hunting, particularly if you’re a first-time buyer. This is a document from a mortgage lender confirming that they will, ‘in principle’, give you a mortgage for a certain amount, which you can use to prove to the developer that you’ll be able to afford the property.

Once you have a clear idea of what you can afford, it’s time to start visiting the new-build developments, either to see a show home, or if there isn’t one, a marketing suite. If you like what you see, make an offer – new-build prices are negotiable despite the prices quoted on hoardings and other publicity.

The likelihood of negotiating success will depend on a number of factors, such as where the property is situated and the level of demand, as well as how far along the development is. For example, if the development is in its early stages, the developer might need funding to continue building.

And don’t forget, it pays to research, so check sale prices of similar properties on the estate and nearby via sites like Rightmove, Zoopla and the Land Registry.

With the price agreed, you’ll need to start on the finances and legalities. You’ll need to appoint a conveyancer or solicitor to deal with the legal side of your purchase. It may be helpful to find one with experience of dealing with new-builds – they’ll check that the developer has been given proper planning permission and that the estate has access to all the right services and infrastructure. They’ll also negotiate the date you can get your keys, and manage the funds to buy the property.

Don’t be pressurised into using the developer’s conveyancing solicitor. A good, independent conveyancing solicitor is less likely to be influenced by the developer to represent your interests.

When you’re buying a new-build, you’ll exchange contracts months before moving in – this is when you pay your deposit, via your conveyancer.

And now it’s time for some jargon-busting. The first you’re likely to hear about is the ‘short stop’ date. This is when the developer expects to finish work. The second is the ‘long stop’ date, which is when the new-build HAS to be finished by.

Research by New Homes Review – an independent survey of new-build buyers – found that more than 40% of new-builds aren’t ready by the original deadline, so the ‘long stop’ date theoretically protects your mortgage offer by alerting you to any slippage in dates that might result in your offer running out, as some lenders only keep an offer open for six months, for example.

This is where having a great conveyancer is vital, as they should keep both you and your mortgage lender up to date throughout the process.

And finally, before you move in, make sure you have a snagging survey done. Almost 90% of new-build homeowners reported snagging issues with their properties, according New Homes Review. Some developers have also come under fire for poor after-sales care and not fixing problems when they’re reported.

Leasehold and Freehold – what’s the difference?

The simple answer amounts to an awful lot more than just technical language. There are few things more important about your home than whether it is freehold or leasehold. It makes the difference between owning your own home outright and having a landlord.

Freehold means you own the building and the land it stands on outright.

Leasehold means you just have a lease from the freeholder (the owner, sometimes called the landlord) to use the home for a set number of years, usually 90 to 120 years but sometimes this could be as short as 40 years or as long as 999 years.

Leaseholders normally pay ground rent to the freeholder and in the case of some properties, such as flats, you might have to pay maintenance fees and a share of the buildings insurance.

There has been a lot of negative publicity about developers and leasehold property in recent years. For example, Which? published a comprehensive investigation into issues surrounding leasehold homes, including ground-rent-doubling clauses, punitive permission fees, freehold purchasing problems and issues buying and selling leasehold homes. Talk to your solicitor if you’re unsure about the new-build you’re buying.

The pros and cons of buying a new-build

First the pros, new-builds are:

• Guaranteed – most come with a 10-year NHBC guarantee and most developers offer their own two-year warranty.
• Energy-efficient – properly constructed homes could help you save on running costs and benefit from lower energy bills.
• A ‘blank canvas’ – you’re the first person to live there and some developers will allow you to choose your own fixtures and fittings, and if you’re buying off-plan (before it is built) you might be able to influence certain design aspects.
• Chain-free – you’re not stuck waiting for someone else to sell their property, so the whole process is smoother.
• Eligible for help to buy equity loan schemes exclusively available for new-build properties.
• Incentivised – some developers offer to pay legal fees and/or your stamp duty to try and persuade you to buy, while some might offer to include certain appliances and/or flooring coverings.

And now for the cons:

• Delays – research has shown that many new-builds are not completed within the timescale first promised.
• Snagging – Almost 90% of new-build buyers reported issues, while some developers have come in for criticism of their aftersales service and for not fixing problems when they are reported.
• Potential lack of space – this applies to the estate itself as developers may look to put as many properties as possible on a site to maximise profit, and also to the size of a property’s rooms which may suffer a lack of storage compared to older homes.
• Disruption – if you’re one of the first to buy on a development, you might be living on a building site for a significant length of time.
• Teething issues – from struggling to get your post delivered, your broadband installed, to having to drive on unfinished roads, if the estate is new there could be issues until it’s completely finished.

Chorley Building Society

To find out how Chorley Building Society can help you buy your dream home visit our Mortgages Page, or give one of our team a call on 01257235003.

Take a look at our guide detailing the current Government help schemes, available to those looking to take their first steps on the mortgage ladder with a new-build home. Click Opens in a new tabhere to view the guide.

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