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.
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
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.
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.