The benefits and pitfalls of new build properties
UK Finance has announced that first time buyers accounted for over 50% of all new residential mortgages in the first quarter of 2018. Recent government led initiatives have resulted in first time buyers becoming a significant proportion of the buyer market, particularly within the new build sector. For those taking their first steps on the property ladder we take a look at the benefits and pitfalls of new build properties and how to minimise the risk.
New build properties, by their nature, are unoccupied and chain free, which means the transaction is not dependent on another and less likely to collapse.
Buyers are also able to live in the property immediately following completion as no renovations or repairs are required. Many new build properties are sold including basic furnishings and kitchen appliances which is particularly attractive to first time buyers who may not own a great deal of furnishings from previous properties.
New build properties benefit from a 10 year guarantee which protects the buyer against defective construction. This offers the buyer comfort that the property has been inspected and built to an acceptable standard.
New build property guarantees do not protect against minor errors. Prior to completion it is advisable to inspect the property and compile a 'snagging list' (a list of all the minor errors) that the developer must rectify by a given time. You may also consider appointing an independent snagging company to carry out a professional inspection on your behalf.
Lower running costs and enhanced security/safety features
Modern building regulations ensure new build properties meet acceptable energy efficiency standards which often results in lower running costs and energy bills.
Regulations also require security and safety features like smoke and carbon monoxide alarms and secure external doors and windows.
Many developers offer incentives to buyers who are able to complete a purchase quickly. Incentives can include a discount to complete within a given time, a contribution towards a deposit, payment of Stamp Duty Land Tax and the inclusion of certain fixtures and fittings. Many of these incentives are significant in value and are a real draw to buyers.
New build properties are often sold at a premium so it could be some years before a buyer sees some return on their investment. This risk can be minimised by carrying out thorough research on the pricing in the area and negotiating with the developer. This can be particularly effective at the end of the developer's financial year. If there is no flexibility on price, consider negotiating additional incentives.
Leasehold vs Freehold
New build flats are usually purchased on a leasehold basis. The buyers' solicitor will report to them on the contents of the lease and care should be taken to ensure that any restrictions are not problematic for the buyers' particular needs and that all charges are acceptable.
New build houses should now be sold as freehold. The government has committed to banning the sale of new houses on a leasehold basis. When purchasing a new build house, buyers should ensure that they are purchasing the freehold.
Lack of certainty
New build properties are often purchased "off-plan" which introduces an aspect of uncertainty into the transaction. Firstly, it can be difficult to estimate the timescales of completion as construction will still be on-going and unforeseen delays often arise. In these circumstances, it is recommended that a 'long stop' completion date is agreed with the seller to ensure the buyer is compensated if the property is not complete by that date. Buyers should inform their solicitor of any critical dates that may affect the transaction at the offset.
Secondly, having committed to the purchase before seeing the finished product, there is a real possibility that the completed property does not meet the buyers' expectations. Care should be taken in reviewing the plans and specifications attached to the contract. These should include information relating to the design, measurements, type and quality of materials and decorative finishes and reflect what the developer is required to provide. The seller's promotional material or show home should not be relied upon as they are not required to meet this standard.
Unlike a typical transaction, buyers are asked to pay a reservation fee at the outset when purchasing a new build property. This typically ranges from £500 - £1,000. Though this sum is deducted from the purchase price on completion, if the buyer decides not to proceed with the transaction for whatever reason, the reservation fee will be lost.
To reduce the possibility of this happening, a buyer should conduct thorough research on the property before making a reservation and ensure that all financial arrangements are in place in advance.
For further information please contact Mark Scott or Jody Coleman in our Residential Conveyancing team.