🚧 BEWARE THE BUILDERS! 🚧
First-time buyers with busy lives and enough earning power will often be drawn to new-build property. Plus, where else can you find that ‘wow’ factor? Not in an old and rundown flat, that’s for sure.
But when you are buying new, you are effectively adding the cost of that lovely kitchen island and open-plan living room to your mortgage. Square foot for square foot, in the same area, new-build is likely to be more expensive than second-hand.
Yet only new properties are eligible for leg-up schemes, such as the government’s Help to Buy Equity Loan, which appears to make more expensive properties affordable. The Help To Buy Saving Scheme is different, allowing you to get a 25% government bonus when buying ANY kind of property. But with Help to Buy equity loans, remember that you are still borrowing the money – in this case a 20% loan from the government – and will have to pay it back.
And whatever price you pay for a new-build, you are relying on it holding its value. Are you prepared to take the new-build chance?
If you are looking at a new development of houses or flats, especially a new phase of an existing site, find out whatever you can about the history of transactions on the site or nearby. Has the previous phase held its value? Find a local agent who is not connected to the site.
Check out the developer’s reputation and track record. Don’t get too bogged down with negative forums because they can be misleading, but make a note of any worrying patterns so you can ask the right questions. All new-builds come with a 10-year building warranty which protects your deposit up to £100,000 should the project not complete and guarantees the fabric for the full 10 years against construction defects or damages.
You’re the end of the chain so no worries about a vendor pulling out. But you often have to complete within a set 28-day period or forfeit your deposit. There can also be delays in the move-in date, so keep in regular contact with the developer or agent and have a temporary accommodation backup plan in place.
Remember service charges can bump up your monthly outgoings, as you are paying a share towards managing and maintaining the communal ground and services.
Make sure you know what these charges cover and check whether there have been any issues or disputes around communal areas.
For old-build, basic surveys are little more than obvious pointers, but surveyors will offer a new-build snagging survey – an independent inspection of a new property to make sure the developer has done everything he should. At a cost starting at £300, this could be worth it if you suspect, or hear about, any potential problems in a brand new development. The survey gives you the ammunition to insist any faults are fixed before you move in.
To get the best out of a survey, ask around for a good conscientious surveyor. Ask for a sample report to see if it is likely to tell you anything useful. Make sure you accompany the surveyor on his tour of inspection, ask questions, be sure you understand the answers, and don’t let him take shortcuts or miss things. He may be the professional, but you are the paying customer.
Doing your homework on potential properties tied up with Help to Buy is essential. That’s because…
New 2-bed flats in some areas have been been priced higher than 3-bed terraces and 3-bed semis (with garden and garage!) in the same neighbourhood;
Living rooms are frequently on the small side, very often struggling to fit a sofa and second bedrooms liable to be more like boxrooms;
The Help to Buy loan can inflate your buying potential, but beyond what is needed in the local housing market and to a level that represents a huge, very risky loan;
Buyers are sometimes offered cashback, free legal fees or other incentives by Help to Buy builders, such is their eagerness to ‘seal the deal’. But these perks come out of selling prices – not the builders’ own profits;
Help to Buy could itself be prompting builders to lift their prices – but this is raising the very real risk of negative equity. If your H2B flat’s real value is well below what its buying price was, you may end up down on your property’s value from day one;
Remember too that the next buyer of a HTB property will not be eligible for the scheme, as the property will then be second-hand. That reduces significantly the pool of first-time buyers who would be able to afford it;
And some house-builders actually shop around for professional valuers to achieve the price they want to sell at.
Phew. You’ve hopefully side-stepped a few banana skins there!
Now find out how much you REALLY need to save for your first home, how other government-backed schemes *can* help you and how to find the right property for you. Plus, if you’re quite happy as a tenant, check out our guide on how to ace renting.