Schemes like NewBuy and First Buy have come and gone but the Help to Buy equity loan scheme has since invigorated the market.
Our own survey of valuers recently underlined how the continued short supply of housing, government incentives, fragile but improving consumer confidence and more recently improved stamp duty tariffs, will all contribute to the renaissance of new build.
But the growth of this sector is still beset by the memories of past ills. Lenders and their valuers have had their collective fingers burned too often to take any new-build deal at face value.
This lack of transparency is illustrated by government incentives that encourage higher prices. Three quarters of our respondents believe that government schemes have inflated new-build prices and 83 per cent also suspect buyers do not understand the premium they are paying as a result of the government scheme.
Nearly as many were convinced that buyers do not understand the part- ownership model they sign up to and 90% did not believe that the new build premium existed beyond the initial sale. Incentives distort markets.
But government schemes are only one element. Sales incentives such as cashbacks or discounted purchase prices have distorted the price paid for new-build properties, especially flats. But some progress has been made here. Since 2008, builders and developers have been required to fill out the CML Disclosure of Incentives Form and this has gone a long way to help. 85% of our respondents said the DIF was a reliable document but, even so, half still felt they were unable to rely on comparable evidence supplied by on site sales offices. Transparency is a work in progress.
These issues of transparency are compounded by the differing risk attitudes to new build across the lending community. Understandably, no lender wants exposure to an entire new development and very often for new-build cases involving a development of over 15 units, an exposure limit will be set on the site in consultation with the local surveyor.
New build presents lenders with a unique challenge when buyers agree prices off plan. If a borrower is contracted to a price for a new build with a developer and by the time of the build completion the agreed value is no longer appropriate, lenders will not want to risk financing an overpriced property. This happened in 2007 with devastating results for some would-be borrowers. The values of new-build properties fell harder and faster than older homes, which meant many lenders were nursing losses due to overinflated valuations
Some lenders are still smarting from the excesses of the boom years, when it transpired that many new flats had been massively overvalued, only to leave buyers in negative equity during the recession. This has resulted in lenders insisting on site exposure limits of 20% for developments of flats.
Developers understandably often regard valuations as restraining sales and long for consistency from valuers and lenders alike. Often they do not understand why better specifications do not impact values more, or why energy efficiency is not reflected in values more positively. There is much we could do to improve this level of understanding.
To my mind, it is clear that better communication and more transparency from all parties will alleviate and help manage expectations. But that is not enough. Consistency from all the parties involved is an important element in building the trust that will in turn breed confidence.
Steve Goodall is managing director of Legal & General Surveying Services
