New build is a bit of a grey area for many borrowers. The merits, premiums and obstacles attached to this kind of property purchase can often be misunderstood, or even ignored.
Despite the UK being a supply constrained country, most buyers have the choice between buying a brand-new home or an older one. And what’s important to remember is that any price premium over and above what a comparable second-hand home costs has to be justified.
The ability of a house builder to charge a premium typically comes from a combination of three things; that a new home is ready to move into, carries a guarantee and has been designed and built for 21st century life. The size of this premium varies according to the location of the home, who built it, how it was built and the specification of the development itself.
Premium longevity
How long the new build premium persists depends on the builder, the buyer and, in some cases, the managing agent. Around a quarter of new homes, generally the very best developments, are able to hold on to their premium for life. Other schemes see their premium eroded within the first seven years – the average time new build buyers hold onto their homes.
For most new homes, the answer lies somewhere in the middle. There’s no one style of home that holds onto its premium better than any other. Having said this, the length of time a premium lasts varies most for flats due to the added complexity of leasehold and shared spaces.
Here, as well as the owner, the cost and the quality of the building management has an effect on the value of a property. For example, a third of new flats retain their premium in full for the first decade while a fifth manage to lose it all over the same time period.
Informed decisions
While the length of time a premium lasts varies, many developers are building homes that hold onto their premium for longer. The average noughties new build holds onto twice as much of its premium compared to a home built in the nineties. A potential buyer wondering what their new home will look like in 10 years could do worse than looking at one built by the same builder 10 years ago.
Intermediaries aren’t expected to be an agent, a building inspector and/or a fortune teller. Clients do have to take responsibility for their own research and choices. But realising, and advising on, some of the intricacies surrounding new build could help clients become better informed not only regarding a current purchase but also in terms of a future sale.
