To New-build or Not to New-Build?

To New-build or Not to New-Build?

With heavy incentives for new-build construction, some landlords may be considering looking into the purchase of newly constructed property for buy-to-let. But what are the advantages and drawbacks of buying, and letting, new-builds? Below we explore the potential benefits of letting such property, as well as things to be aware of when making an investment.

 

The Good

Built to the Latest Standards

As the property is new, it will (or should!) have been built in accordance with the latest regulations and standards. Advances in building techniques, new materials and better systems for security, fire safety and ventilation mean that new properties are likely to be safer and more secure than older ones, and should not (in theory at least) require substantial repair costs for many years when factoring in standard warranties

More Energy-Efficient

A new-build property is likely to be much more environmentally friendly than older properties. This will prove useful in the long-term, as from April 2018 all rented properties will be required to achieve a minimum Energy Performance Certificates rating of E.

Modern Design and Less Need for Re-Decoration

Similarly to being built to the latest standards, the property will also have the benefit of being brand new and built with modern design in mind. Provided you (and your tenants) are happy with how the property has been fitted, there will be no immediate need for re-decoration or furnishings.

Ease of Purchase

As the property is new, there will be no current owner or occupier. With no onward chain, new-build properties can be much easier to purchase than others as the process shouldn’t be held up dealing with other parties, blind bidding or offers over the asking price. In addition, the developer/s may offer incentives to buyers such as free carpeting and the payment of legal fees.

 

The Bad

Not always suitable for Multiple Occupiers

New-build homes are often designed to be family homes, and therefore may not necessarily be suitable for the same number of sharers. For this reason, new-builds may not always satisfy the standards set by local authorities if they are used as HMOs (houses of multiple occupancy).

Drop in Value

New properties will only stay ‘new’ for a brief period, and can depreciate in value if other units fail to find buyers. As incentives are often offered to buyers to encourage quick purchases, the real value of new-build properties can sometimes be unclear, and buyers can find themselves at risk of negative equity.

For this reason, it’s usually a good idea to compare other properties on the market, particularly older, resale properties, to get a better sense of what the new-build is worth. In addition, be aware of the need for proper snagging to ensure any faults with the new property are rectified.

Lack of Space

While new-build properties can be very attractive for prospective tenants by virtue of their, well, newness, they can also lack space. According to RIBA, the average new home in England is only 92% of the recommended minimum size. With the ever-rising cost of land, developers often try to maximise returns by increasing the number of homes on a development while maintaining an acceptable building density. This often results in less space for storage, habitation and communal living, and can make new-builds far less accommodating than older units.

Dependency on a Timetable

If the new-build is in the process of being constructed, you will naturally have to wait until this timetable is met. Delays to construction can put your mortgage offer at risk, and will also set you back financially while the property goes unbuilt and, by extension, untenanted.

Density of Properties to Let

If the development is for a large number of units with many of them being identical, a high proportion of them being marketed by landlords would lead to competition on price alone when seeking tenants.

 

Are New-Builds Worth the Investment?

There are many positives to investing in new-build properties, from lower maintenance costs to ease of purchase, and if the properties have been built near or in areas of demand (as many are) it goes without saying that you will have no problems finding prospective tenants.

However, as with any investment it’s important to do the legwork. Find out as much as you can about the local area, the developers handling the project, and the availability of financing for a new buy-to-let. If all of these issues are given their due consideration, there is absolutely no reason why making an investment in a new-build can’t be a rewarding one, for both you and your tenants, for many years to come.

 

Serious about New-Build?

If you’re already sold on the benefits of buying a new build then NLA Mortgages offer some of the most competitive rates as well as products not available in the wider market.

Visit www.nlamortgages.co.uk for more info.

One thought on “To New-build or Not to New-Build?

  1. > are happy with how the property has been fitted
    And there’s a key, unlike “traditional” build methods of only a couple of decades ago, a modern property is designed to be non-maintainable. Traditionally I’ve been used to being able to pull up an odd floorboard or two in order to (for example) alter the electrics – you can just forget this with new builds.
    I’ve looked over a new build that a relative is considering. Floors are large sheets, glued together and glued down – not a snowball’s chance in hell of lifting anything without it being a major project. Fine, just use one of those hole cutters designed for such situations – ha, they’ve put noggins towards each end of the joist spans so you can’t get cables along between the joists without making the floor into something the consistency of swiss cheese. Electrics are “as little as they think they can get away with” and far below what I’d consider as “rentable standard” for the sort of tenant I’d be looking for – and done in a manner that makes any alterations as difficult as possible (cables clipped to wall and plastered over, no conduit in sight). Communications consists of a single phone socket behind the TV and (see above) naff-all possibility of getting wired phone or network connections anywhere else (no f***tard, everyone doesn’t use wireless for everything these days). They’ve decided that everyone will cook by gas, and so made no provision for electric cooking – and see above, naff all chance of adding that afterwards. The vendor was going on about what he considered features (like the expensive “waterproof” floor – but not where the bathroom fitters cut holes in it !) which were mostly “built down to minimum building regs”. The ground floor has a concrete slab floor – which the vendor believes won’t be cold because it’s insulated. The porch seems to be designed to get damp and go mouldy – we’ll see. And no doorbell, or any way of wiring one in.
    Unfortunately I saw nothing of this until it was far too late to fix anything. I recon it would have added under 1% extra to the cost of a 1/4 million quid house to add these at the fitout stage – probably more than 10% to 20% to rip it to bits to retrofit them. Oh yes, when I last drove past I see they’re doing the paving – so I assume they’ll be expecting BT to run washing lines instead of using underground ducting for the phone cables.
    And a combi boiler – I hate combi boilers in general, and as a landlord I hate them even more since it’s a “WHEN it fails, the tenant is stuffed” feature while other options allow for backup heating & hot water. And don’t get me started on making a “feature” of the gas meter box and exposed pipes next to the front door.
    So on this basis, I’d not buy an already built new-build. I’d consider one as long as I could get in early and make sure these “standard” design f***ups were sorted, otherwise only if the price was low enough to justify spending 20% of the price gutting it (as in, getting a big skip and a gang with the instructions “back to bare block, no ceilings, no floors”) and re-doing it properly !
    As far as I can tell, this is fairly common thanks to clueless architects and clueless developers who are designing down to minimum price with no regard for anyone who actually has to live in it.

    > Lack of Space
    That’s an understatement. I’ve looked at new-build houses locally and seen 4 bedroom houses with less storage space than my one bedroom flat (1990s build) – even leaving out the garage it’s got. To call them shoeboxes would be disrespectful to shoeboxes. And up here (NW England) we don’t have anything like the space constraints in places like London.

    If that sounds like I think modern developers are a bunch of clueless idiots – well you are getting somewhere close to my thoughts on what I see being built locally. If I had the money, I think I’d rather build something myself – I’d get something a lot better for next to nothing extra, though I might find a few tradespeople being unhappy at being expected to do things right !

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