How to buy a new-build property
The government is busy promoting yet another scheme to get people on to - and move up - the property ladder. Announced by Chancellor George Osborne in the March 2013 Budget, Help to Buy is an equity loan scheme for first-timers - and also for house movers - available on new build properties up to the value of £600,000.
With the scheme, you only need to raise a 5% deposit, and the government then lends you a further 20%; the loan is interest-free for the first five years.
The launch is aimed at stimulating pent-up demand at the bottom end of the market, but critics have raised concerns that Help to Buy could produce a price bubble, due to a sudden surge in new buyers chasing a limited supply of properties.
While this remains to be seen, the fact remains that many aspiring first-time buyers and second- steppers will be trying to purchase a new-build for the first time.
New findings from Halifax show over the past five years, the average price of a new-build house in the UK has risen by 12% to £233,822 – 9% higher than the UK average house price for all properties.
"We've seen a lot of positive sentiment towards the new homes market, with various schemes launched to get the house-building industry moving," says Craig McKinlay, mortgage director at Halifax.
With prices at this level, securing a mortgage for a new-build home is still no mean feat – yet organising the finance is only half the battle.
While buying a new-build may seem appealing as the property will meet the latest building codes and satisfy high energy-efficiency standards, purchasing a brand-new home comes with its own raft of issues, such as dealing with developers, buying-off-plan, and problems with 'snagging'.
Here's our guide to ensuring you don't end up out of pocket.
Research the developers in your area
At the outset it's worth making sure you know and understand all of the developers operating locally to you, according to Kate Faulkner, director of independent property advice website Property Checklists. "Carry out some research to compare the best value deals available on new-build properties in your area," she says.
Vanessa Ambler, managing director of New Home Advisor, adds that potential buyers must ensure the location is as good as it can be. "Think about transport links, parking, and the distance to nearby facilities," she says. "Visit the site regularly so you get a feel for the location, and don't rely on the images provided by the developer."
Beware of paying a high premium on purchase
When considering a new-build, make sure you check the price with that of a second-hand home, as new-builds can be over-priced.
"While it's fine to pay a small premium, you don't want to end up paying so much extra that your home ends up losing value in the first few years," warns Faulkner.
In some cases, buyers could find themselves paying a premium of as much as 25%, according to Sally Fraser, property search agent at Stacks Property Search.
"A new property is only 'new' for a brief period of time, just as it is when you drive a new car out of a showroom," she warns. "It's always worth comparing similar 'old' properties in terms of value, space, rental value and so on to ensure you're going into the purchase with your eyes fully open. Check the price per square foot, and compare it with the resale market so you understand the extent of any premium you're paying."
For useful figures on selling prices, valuations and area guides, visit mouseprice.com.
Negotiate with developers
The best time to try your luck negotiating with developers is when they are coming to the end of their financial year – or half-year financials.
"Firms will often be keen to move some of their stock to get extra capital in just before this time," says Fraser. "The developer will have a rock-bottom price that they will sell for, and it is a question of negotiating hard with the right person."
Successful negotiation is all about having a clear strategy and sticking to it. "Identify your needs before you enter the negotiation, and don't be afraid to walk away," says Ambler. "Let the developer chase you, as this will indicate how keen they are to sell."
Find out what other properties in the development have sold for, and use that information to help in your negotiations; useful websites to check prices include Rightmove and Zoopla.
Crucially, the very best deals are likely to be had at the beginning – or right at the end – of a development build. "Bargains can often be found by looking to purchase one of the last few flats or houses when the developer is finishing off and keen to move to the next project," says Stacks Property Searches' Sally Fraser.
The best way to improve your chances of striking a deal is by having the money ready, knowing what you are doing and having a legal company lined up.
"All of these things point to a quick purchase," says Faulkner. "Some developers will offer incentives such as a payment towards the stamp duty or legal fees, but getting a cash reduction, such as a £10,000 discount, will make the biggest difference."
If you can't get the price down, you may want to try your luck at getting fixtures and fittings and other freebies added instead.
"These extras will be worth more to you than the developer," says Ambler. "These include flooring, turf, white goods and tiling."
Alternatively, you could ask for a reduction in your contribution to the maintenance for a period of time if you are buying a flat, adds Fraser. "But you must get any 'added extras' agreed prior to exchange," she says.
Pay attention to detail
You need to be ruthless about checking what the quality of build is like on the site on which you want to buy. "Ask yourself a number of questions," says Faulkner. "How well do the windows and doors fit? What sound insulation measures have been made between properties – and
also between rooms? How efficient is the home from the perspective of utility bills? And are there any service charges?"
Also check details such as the seals around the worktops, the joins of the woodwork, and the materials used. "If the quality of the finish is not perfect, or if the workmanship is poor, it will not wear well – and could be costly in the long run," warns Fraser.
In addition, it's vital to find out if the house or flat is leasehold or freehold, as this could have big repercussions further down the line. "If the property is leasehold, make sure you check the paperwork to find out what you can and can't do to the place, and how money will be collected to cover future expenditure," says Faulkner.
Another issue you need to consider is the completion dates for all phases of the build. "If you buy early in the life of the development, you may get a good price, but run the risk of living in a building site for months after that," warns Fraser.
Pros and cons of buying off-plan
One way potentially to get a better deal on a new-build property is by buying off-plan, as this can mean a reduction of up to 15 to 20%. "If this means substantial discounts, then it may pay dividends," says Fraser. "But this can be a high-risk strategy in the current market."
Faulkner agrees that unless you are buying a property in an area where prices have clearly recovered, buying off-plan can be very risky.
"Property prices are pretty stagnant now, so when you include inflation, they're actually continuing to fall," she says. "You must beware of properties offered 'at discount' as this is extremely difficult to prove when a property is built, let alone when a property won't be built for another two years or more."
Scour the paperwork
For all new-builds, it's vital to get the contract carefully checked by a solicitor who isn't the solicitor acting on behalf of the developer.
"That individual must have good knowledge of how new-build contracts work," says Faulkner. "You need to keep an eye out for tricks such as prices increasing towards completion, and must ensure you know what will happen to your deposit if the developer goes bust."
Before signing on the dotted line, it's important to check that any work you requested has been completed to your satisfaction.
For more information on buying a new-build, visit propertychecklists.co.uk, stacks.co.uk, and newhomeadvisor.co.uk. Also visit helptobuy.org.uk for details of the government's equity loan scheme.
Be a stickler for snagging
An important part of buying a new-build property is a process known as snagging. This involves going around the property with a fine-tooth comb and checking for anything from chipped tiles to dodgy electrics and faulty plumbing, so that minor work can be remedied.
Most large developers will fix anything you spot before you move in, though sometimes faults only arise once you move in and begin using the plumbing and heating. Faults are often fixed quickly while a developer is still on site but, once they have finished, problems can take longer to get solved so bear that in mind when considering which stage of a development to buy at.
Snagging surveys should be carried out by an independent expert who knows how to snag a new-build. "These individuals will be more experienced at spotting things that need fixing," says Fraser.
Even if there are long warranties in place, it's still worth carrying out your own survey. "The average new-build will have in excess of 100 defects," warns Ambler. "Enlist a professional to help you spot these, as moving into a brand-new home with numerous snagging defects is exhausting."
Equally, if a developer tries to talk you out of having a professional snagging report, you should be suspicious, as this may be a sign that they have something to hide.
Once the snagging survey has been carried out, write a full detailed list and get agreement with the developer that all work will be carried out prior to exchange – or by a certain deadline. As snagging services and costs will vary, the key is to shop around; New Home Advisor, for example, offers a nationwide snagging service from £199.
An off-plan property is one sold to the buyer before it has actually been built and so the prospective buyer relies heavily on architect drawings, scale models and the assurances of the property developer in order to “see” what they’re buying. For investors or speculators, in a rising market, buying off-plan means you buy at this year’s prices and, when you take possession, the market value will have increased. The biggest risks with off-plan are the developer will go bust or not complete the project or that the market will fall and the completed property will be worth less that the agreed purchase price.
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
The right to hold or use assets (generally property, but also vehicles) for a fixed period of time at a given price, without transfer of ownership, on the basis of a lease contract. Leasehold ownership of a residential property is simply a long tenancy, the right to occupation and use of the flat for a specified period – the ‘term’ of the lease, which is fixed at the beginning and so decreases in length year by year and the property can be bought and sold during that term. When new, leases are for 99 or 125 years until its eventual expiry, whereupon ownership of the property reverts to the landlord.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Permanent and absolute ownership and tenure of a property (residential or commercial) and/or land with freedom to dispose of it at will but with no time limit as to how long the property/land can be held (in perpetuity). Freehold is the opposite of leasehold.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.