Prices of new-builds have risen 5% more than other homes in the last five years
If you fancy buying a newly built home, you might have to dig a little deeper.
The typical price of new-build homes is rising at a faster rate than the rest of the market.
Research shows that over the last five years the value of new-build homes has grown by 27% - 5% more than existing stock. (1)
It’s a similar story over a longer period too. From 2009 the average price of a new-build home has jumped by 47%, compared to 42% for homes of an older vintage. (1)
Separate analysis has found steady price growth over the last year, with new-builds up almost 3% in the 12 months to the end of September. (2)
What does this mean if you want to buy a new-build?
New-build homes already tend to come with a premium compared to older homes.
According to the most recent data from Land Registry, the average price paid for a new-build in June was £282,051, while for an existing property it was £227,595. (3)
The justification for the premium tends to be that newly built homes can be less likely to have significant issues - such as rising damp or structural problems - than homes built decades ago.
They’re also often more energy-efficient, and you may be able to customise your home to meet your tastes - picking the carpets and kitchen cabinets before you move in, for example.
This premium can have a big impact whether you’re looking to buy a home in which to live or as an investment.
There are lenders that will accept a 5% or 10% deposit, but your options would be limited.
This is because lenders view them as more complicated to value, and they want to protect themselves against the risk of the property’s price dropping in the future.
So if you’re wanting to buy a new-build you may need to save for longer to get a bigger deposit, as well as take out a bigger mortgage to cover the purchase price.
Landlords also need to think carefully when it comes to new-builds.
If you’re buying an older home, you can speak to letting agents and other landlords in the area to get a good idea of how much tenants are willing to pay, as well as how popular the street currently is with tenants.
But that isn’t really an option with a new-build.
And the higher purchase cost may mean you earn less as your mortgage repayments would be higher.
What should you do if you’re buying a new-build?
“New-build homes can have fewer unpleasant hidden surprises than other homes, but you’ll have to pay a substantial premium to buy one,” said Ahmed Choudhry, a Mortgage Adviser at Trussle.
“Getting a mortgage for a new-build, whether you plan to live in it yourself or let it out, can also be a little more complicated.
“This is because some lenders have different criteria for new-builds, such as requiring larger deposits. Or they may limit themselves to only offering specific products - potentially with higher interest rates - for borrowers looking to purchase a new-build.
“Bear in mind that most lenders only offer mortgages for new-builds from certain developers.
“So speak to a fee-free mortgage broker if you need any help to navigate the different rules.”