Current data shows that one in four people aged 20-34 still lives at home with their parents. These are pretty depressing statistics which can discourage many of us from even thinking about moving out – let alone buying our own property.
Luckily, the days of needing a 10% deposit and a generous loan from the bank of mum and dad are kind of behind us. Well, thanks to New Builds, we now have more options than the traditional house buying model we’ve been used to.
New build properties aren’t a new thing, however, there has definitely been an increase of them over the past few years, at least around where I am. Building sites are popping up everywhere with the promise of luxurious properties that will get you on the housing ladder easier than ever before.
I bought a New Build in December 2018 and it was a massive learning curve for me. It was a lot more nuanced and complicated than I first expected and so I’ve done a lot of research and have a lot of advice to share.
What is a New Build?
A New Build home is exactly what it says on the tin — a property that’s new and has never been lived in. This can either be built from the ground up or in some cases, buildings like offices are refitted to become flats (this is what we bought).
They can be a really great option for anyone, but especially first-time buyers as the properties often come with your white goods, high spec decor and you don’t pay Stamp Duty on your first property (£300k or less).
How to buy a New Build
As I’ve mentioned, you no longer need to have a 10%+ deposit to buy a property. There are plenty of options for first-time buyers to finance their first home. Here are a few:
Help to Buy Equity Loan
Most New Build homes come with an option to buy with the help of the government’s Help to Buy Equity Loan, a scheme that loans buyers 20% of their house price (40% if you’re in London), and you only need a 5% deposit, meaning that saving for your first deposit is essentially cut in half and your monthly mortgage repayments are smaller because you only have a 75% mortgage.
The Help to Buy Equity Loan is interest free for the first five years with a £1 monthly admin fee. On year six you pay 1.75% interest, which then increases by the Retail Price Index (RPI) + 1% every year after — this can get expensive!
Your loan isn’t an amount, but rather a percentage of your property. So when you pay it back (either directly or after selling it), you will give them 20% or 40% of the value then. For example, if you bought a £200,000 property and borrowed 20% (£40,000) and then sold the property four years later at £220,000, you’d owe £44,000.
Personally, I think if you’re only looking to step onto the ladder rather than for a forever home, it’s a great scheme. Because you can save for your next home with your reduced 75% mortgage, and only requires a 5% deposit, which helps if you’re struggling to get your deposit together.
If you’re looking for a bigger place, but can’t afford the deposit, Shared Ownership or Share to Buy may be a great option for you. You can buy a share of a property (including New Builds) between 25% and 75% and pay rent on the remaining share, which is owned by a housing association.
This is a scheme for non-homeowners (it doesn’t have to be your first home, however) and you have the option to buy more of the property at a later date until you own 100% the property if you want.
Personally, I wasn’t comfortable with this option because the cost of a mortgage and rent (which is dead money IMO) wasn’t right for me. However, for many, this is the best way to buy the home they really want.
Help to Buy ISA
If you don’t want to borrow money from the Government or own just a fraction of your home, there is a third option which is a Lifetime ISA. Offered by many mainstream banks, this scheme allows first-time buyers to earn up to £1,000 a year towards their home by saving a maximum of £4,000 a year into a lifetime ISA. Remember, however, that this contributes to your overall ISAs limit of £20,000.
Unlike the Equity Loan, these ISAs are available to each first-time buyer, not each household which means that if you’re buying with a partner who’s also a first-time buyer, you could potentially earn £2,000 towards your property per year.
Bear in mind, you must have saved the money into an account for over a year and the property must be £450,000 or less.
The scheme also isn’t restricted to New Build properties, but rather just a generous reward for saving for your home. But you can use this scheme with others, like the Help to Buy Equity Loan.
Pros of a New Build
There are a lot of benefits to choosing to buy off-plan and taking a leap of faith towards a New Build.
For one, it’s brand new. No one else has lived there before and left their ugly wallpaper or outdated carpet. The spec is usually pretty neutral, so you’ll have a blank canvas to start with.
Also, depending on the developers, you might have a say in the finishing touches, so you won’t have to redecorate or remodel because the property was designed with you in mind.
You’re also covered by a warranty. Although most buildings get 10 years, this doesn’t always include minor snagging or things like electrical problems or plumbing work. However, in most cases, you will be covered for the first two years for anything you’re unhappy with or breakages.
Lastly, some New Build properties come fully fitted with your white goods including your fridge/freezer, oven, dishwasher and washing machine. This can save you £1,000s in the beginning and these will also be covered by a warranty as well.
Cons of New Builds
Okay, so it all sounds great — right? However, just like with everything in life, there are some downsides to buying a New Build.
It took over a year from first viewing the flat to moving in, luckily for us, we were still living with our parents, so we weren’t really affected by the vast amount of delays. However, if you’re in rented accommodation or in a buying chain, building delays can end up being costly.
Not only is it annoying that we’re not able to move in, but mortgage offers only last up to six months, so for many, they have to go through the application process again if a property is severely delayed.
Negative equity risk
New Build properties are much more likely to lose value, especially in the first few years. If you’re planning to only live there for two or three years, you could risk losing equity and in a precarious situation when you sell.
This is because of the premium you pay for a New Build. The appliances are new, you have a warranty, the place is spotless. But when you come to sell, everything is older and the other factors that go into price valuations might not boost the loss.
It’s a risk, but if you buy in a affluent area, take care of your property and spend the time saving to contribute towards your next deposit, it might not all be doom and gloom.
Overall, I think that if you’re a first-time buyer with a limited budget, a New Build is a great option to get you on the property ladder. The initial costs are low and depending on where you live, the properties could be a worthwhile investment that’s easy to sell on.
However, it’s not for everyone and sometimes the security and legacy of an old home is more appealing to buyers. Whatever you choose, remember it’s your choice and you should do what’s right for you.