First, it’s essential to acknowledge that new builds often come with a price premium compared to older homes. This can affect initial costs, rental yields, and long-term capital growth. However, this premium can be justified by factors such as modern amenities, higher energy efficiency, and lower maintenance costs.
The construction quality of new builds is paramount. A well-built property can lead to lower maintenance costs and higher tenant satisfaction. If your client engages a reputable developer, ensuring a high-quality build, it can help protect their investment.
New builds offer many positives.
They tend to have higher energy efficiency standards, with government data indicating that 85 per cent achieve an A or B rating. This can lead to reduced utility costs for tenants, estimated at over £2,000 per year. This can boost tenant demand and premium rents, as sustainable living becomes increasingly popular. New builds often feature modern design, new appliances, and updated amenities, which can attract tenants.
The latest update on the Minimum Energy Performance Bill presented to Parliament requires all buy-to-let properties to be a minimum energy performance certificate (EPC) rating of C by 2028. With the expectation of this new legislation, buying a new-build property that does not require work to bring it to the required standard is an attractive proposition for an investor.
In addition, some builders develop incentives for property investors. For example, Bovis offers a sale and leaseback scheme, providing property investors with guaranteed rent for a set period, an appealing hands-off investment option with a guaranteed income stream.
Potential issues to think about
However, there are challenges to consider. New-build leasehold properties come with additional costs, such as ground rent and service charges, which can impact investment returns.
Block saturation can be an issue. If a large proportion of a new-build development is sold to property investors and they all come onto the market at the same time, it could lower rental income if the demand isn’t sufficient in that specific area.
Finally, it’s crucial to consider lender criteria when investing in new builds. Most lenders offer a maximum of 75 per cent loan to value (LTV), with fewer options available at 80 per cent.
Builders’ gifted deposits are considered by some at the typical five per cent, but it varies with some lenders on how they include this in the overall value, so this is an area advisers should be particularly careful to check.
Many lenders offer green buy-to-let mortgages. So, your client may benefit from lower mortgage payments or fees with green buy-to-let mortgage incentives offered by some lenders.
In conclusion, new-build buy-to-let investments can offer significant opportunities, but they also come with unique challenges.
Advisers can help investors carefully consider factors like property premiums, construction quality and tenant preferences to help balance potential rewards with the inherent risks. Investing in the new-build buy-to-let market can be rewarding with due diligence and the right mortgage advice.
