Is Buying a New Build a Good Investment?

New build properties often come with a premium price tag. So are they actually worth the extra money and is buying a new build a good investment? This blog looks at what you actually get for your money with a new build and whether it is worth buying a brand-new property. We weigh up all the pros and cons, so you don’t have to.

What Does The Data on New Builds Suggest?

New builds come with a premium price tag of around 18%, but some would argue that they also offer premium quality. This depends on what type of property you get and, of course, the building company.

Why Invest in a New Build?

Less maintenance – Many people prefer to buy a new build because less maintenance is likely to be required in the years following completion, with new build homes coming with a 10-year NHBC warranty. This makes them a popular choice for some landlords who want less hassle.

Higher rent – Many tenants also prefer a new build property, which means a higher rent can be charged on new builds.

Energy costs – New build properties are also often better insulated, which means energy bills are likely to be less expensive and they have better EPC ratings (most have ratings A or B). With all buy-to-let properties having to have an EPC rating of c or above by 2025, this may encourage more landlords to purchase new build properties in the future.

Higher spec – Newbuild homes often come with new appliances and technology. Some new apartment blocks also offer concierge and gymnasiums.

Key ready – Nobody has lived in the house, which will be an added incentive to prospective tenants
Incentives – When buying off plan you may be also able to get a discount on the price of a new build property or get extras thrown in such as carpets.

Why Not Invest in a New Build?

Premium price – Due to their premium price, new builds can lose value quicker than older properties, which may become a problem if you choose to sell.

More difficult mortgage process – Also, lenders are more strict on new-build purchases due to this risk of devaluation and may charge higher interest rates on mortgages.

Snags – Even though people buy new builds for less maintenance, many still have snags such as leaks, doors sticking and loose tiles. The good news is that until the site completes builders will be on site and can fix the issues.

Ongoing building work – Buying on a new build estate means you are moving to an estate where building work may still be taking place, so you may be without things such as the internet initially and put up with muddy roads.

Lack of character – New build properties are a blank canvas to add your stamp to, but some would argue they lack character.

Rental yield – If being bought as a buy-to-let, due to the premium price, the rental yield may be less on a new build property so this is something to bear in mind.

Delays – When buying a new build, there are often delays, remember your house is not built so if the developer incurs any delays they are passed on to you, which means you may have to pay extra rent or storage costs.

Additional costs – New build properties are also likely to be leasehold, which means you are likely to pay a ground rent charge.

Limited scope for improvements – Less land and a higher purchase price may limit the scope for improving or adding additional value.

What are the Costs Associated With New Build Property Investment?

• Mortgage interest rates on new build properties are often higher, so this is something to factor in when calculating monthly cash flow.
• Many new build properties come with annual leasehold costs.
• If investing in a new build property, stamp duty land tax will be payable at 3%, therefore is likely to be higher due to the premium price tag.
• Service charges with new build apartments are common and can be quite expensive, particularly for developments offering high-quality services such as gymnasiums and a concierge service.
• Parking is scarce, especially in city centres. If new build complexes offer parking, it can come at an additional cost.
• If a new build is built off plan, it may not come with finishing touches, such as carpets, appliances and landscaping so these costs need to be factored in.
• With many new build developments, things like fitted wardrobes are offered as an extra and come at an additional cost to the buyer.
• Snagging surveys – It is not necessary to get a full home survey on a new build property, but that is not to say the property will be without any potential issues. It is common to get a snagging survey on new build properties, which identifies and minor issues that can often be rectified by the builder, but these surveys come at a cost.
• Deposit – New builds often require a deposit to be paid to ‘reserve’ the property initially, which is payable upfront.

What are the Risks Associated With New Build Investment?

Buying a new build is a safe bet in terms of energy efficiency, likely maintenance and specification. The main risks of buying a new build property are:

• Depreciation due to paying a premium price
• Delays in completion and some cases developers going bust
• Ongoing building work causing disruption and noise to you or your tenant
• The likelihood that you cannot get to know your neighbours well until after you have moved in
• Depending on the builder, build quality is not always of the highest standard, which makes selecting the right development key.
• New build developments are often built in areas that are up and coming, where it can be difficult to predict future hour price growth.

What Types of New Build Incentives are There?

Sometimes it is possible to strike a better deal on a new build than an older property. Incentives usually depend on the development and are limited to particular plots, but can include:

• Deposit being paid
• Part exchange on a property to sell
• Stamp duty being paid
• Additional free items such as carpets and curtains

Is it Better to Rent Out the Property or Sell it Quickly?

With new builds often having a premium price tag, it would not be wise to invest in a new build property with the sole aim of selling quickly. Although prices have remained strong in recent years, depreciation is a risk with new build properties. Also. If you buy on phase 1 of development, anyone selling quickly will be competing with future phases of new properties.

Having said that, if you manage to secure a great off-plan deal, for example, and have the opportunity to get a good return on investment, selling the property as opposed to keeping it for the long term would be a matter of personal choice.

How to Find the Right New Build to Invest in

Choosing the right new build to invest in means analysing the same things as with an existing
property. The main things to focus on are:

• House prices in the area and how prices have grown in recent years/predicted house price growth
• What rental income can be achieved and what rental demand is like in the area
• What the average rental yield is (return on investment each year)
• Local amenities
• Transport links
• Plans for investment in the area
• Type of property, for example, an apartment in the city centre may lend itself well to air bib, young professionals or students whereas a rural semi-detached would work better as a standard buy-to-let.
• Mortgage repayments and monthly cash flow
• On-site facilities – with many new build developments now offering added facilities such as on-site shops, it is worth comparing each development to assess how appealing the development is as a whole.

Whether buying a new build as an investment is the right thing for you will depend on affordability, your long-term goals and objectives and what type of investment you want. Energy efficiency, specification and low maintenance make new builds attractive to first-time buyers and landlords alike, but in terms of adding value, flipping and a straightforward transaction, new builds often come with increased risk.

The most important thing to remember is that whether buying a new build property straight from the developer or an older property via an estate agent, due diligence is key to making the best investment for you.

If you have any questions, please get in touch with us today. For more information about buying a house as a first-time buyer, follow this link to learn more.