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| Does buying a new-build home leave you on shaky foundations? | Does buying a new-build home leave you on shaky foundations? |
| (25 days later) | |
| Homebuyers wanting a new-build property will be offered a lifeline from the government on Monday 1 April when funding for an interest-free loan becomes available, as part of the Help to Buy scheme. But is opting for a new house or flat setting yourself up for a fall? | Homebuyers wanting a new-build property will be offered a lifeline from the government on Monday 1 April when funding for an interest-free loan becomes available, as part of the Help to Buy scheme. But is opting for a new house or flat setting yourself up for a fall? |
| A raft of government and industry-backed finance schemes have been launched to encourage builders to build more. But poor workmanship, delays and unexpected costs can all turn a buyer's dream into a nightmare. At the end of 2011, Which? surveyed 200 homeowners who had bought new in the past five years and found that more than half had experienced problems. | A raft of government and industry-backed finance schemes have been launched to encourage builders to build more. But poor workmanship, delays and unexpected costs can all turn a buyer's dream into a nightmare. At the end of 2011, Which? surveyed 200 homeowners who had bought new in the past five years and found that more than half had experienced problems. |
| "A new-build home can appear less problematic than buying an older property, and it may be easier to get a mortgage, especially with a small deposit," said a Which? spokesperson. "However, you could experience delays in the completion or be hit with unexpected costs." | "A new-build home can appear less problematic than buying an older property, and it may be easier to get a mortgage, especially with a small deposit," said a Which? spokesperson. "However, you could experience delays in the completion or be hit with unexpected costs." |
| Here we take a look at what you need to know before you decide to buy new. | Here we take a look at what you need to know before you decide to buy new. |
| Finance packages available | Finance packages available |
| The interest-free loan part of Help to Buy will be offered from 1 April 2013 and limited to people who want to buy new-build. It is similar to the existing First Buy scheme, but this time it is available to existing homeowners as well as first-time buyers. First Buy was launched in September 2011 and, according to the government, by September 2012, 7,000 people had taken it up. | The interest-free loan part of Help to Buy will be offered from 1 April 2013 and limited to people who want to buy new-build. It is similar to the existing First Buy scheme, but this time it is available to existing homeowners as well as first-time buyers. First Buy was launched in September 2011 and, according to the government, by September 2012, 7,000 people had taken it up. |
| Under Help to Buy, borrowers need to raise 5% of the value of the property, but can borrow a further 20% on an interest-free basis from the government. The biggest loan available will be £120,000. | Under Help to Buy, borrowers need to raise 5% of the value of the property, but can borrow a further 20% on an interest-free basis from the government. The biggest loan available will be £120,000. |
| The loan must be repaid when the property is sold. However, if you want to repay it in part or in full, without selling your property, you can do this by "staircasing", or paying back in stages at any time as long as 12 months have passed since the property was purchased. | The loan must be repaid when the property is sold. However, if you want to repay it in part or in full, without selling your property, you can do this by "staircasing", or paying back in stages at any time as long as 12 months have passed since the property was purchased. |
| After five years, the loan will attract interest at 1.75%, which will rise annually by the RPI rate of inflation plus 1%. | After five years, the loan will attract interest at 1.75%, which will rise annually by the RPI rate of inflation plus 1%. |
| Not all mortgage lenders will lend on properties bought using Help to Buy (or any other shared-equity scheme). "Santander, for example, doesn't," said David Hollingworth of mortgage brokers London & Country. "Others will lend, but with rates specific to the schemes." | Not all mortgage lenders will lend on properties bought using Help to Buy (or any other shared-equity scheme). "Santander, for example, doesn't," said David Hollingworth of mortgage brokers London & Country. "Others will lend, but with rates specific to the schemes." |
| Last week, NatWest launched its Help to Buy offering: a two-year fix on a 75% loan-to-value at 3.15% with no fee. Halifax has a two-year fix at 3.89% with no fee or at 3.49% with a £999 fee. | Last week, NatWest launched its Help to Buy offering: a two-year fix on a 75% loan-to-value at 3.15% with no fee. Halifax has a two-year fix at 3.89% with no fee or at 3.49% with a £999 fee. |
| Another scheme, New Buy, is also aimed at those buying new-build homes. Buyers must stump up a 5% deposit, but then the developer will pay the mortgage lender some of the value of the property while the government provides an additional guarantee. This allows borrowers to take out a mortgage up to 95% of the value of the property. | Another scheme, New Buy, is also aimed at those buying new-build homes. Buyers must stump up a 5% deposit, but then the developer will pay the mortgage lender some of the value of the property while the government provides an additional guarantee. This allows borrowers to take out a mortgage up to 95% of the value of the property. |
| Pros of buying new-build | Pros of buying new-build |
| Plenty of people buy new-build because of the perceived lack of hassle with maintenance and the fact that you in effect have a blank canvas on which to make your mark. | Plenty of people buy new-build because of the perceived lack of hassle with maintenance and the fact that you in effect have a blank canvas on which to make your mark. |
| "They are all nice and shiny and feel fresh and new," said James Greenwood of Stacks Property Search. "Often you can get engaged with the developer in the final stages and fine tune the property to what you want it to be – and that can be cost-effective." | "They are all nice and shiny and feel fresh and new," said James Greenwood of Stacks Property Search. "Often you can get engaged with the developer in the final stages and fine tune the property to what you want it to be – and that can be cost-effective." |
| New homes also tend to be more energy efficient – though you might be surprised that many are not more so. They must have an energy efficiency rating of at least C (rates are between A and G), with higher requirements for housing association and council homes. Many do not score above C – so don't necessarily expect to buy an A rated home if you are buying new. | New homes also tend to be more energy efficient – though you might be surprised that many are not more so. They must have an energy efficiency rating of at least C (rates are between A and G), with higher requirements for housing association and council homes. Many do not score above C – so don't necessarily expect to buy an A rated home if you are buying new. |
| The majority of new-build homes also come with a guarantee from the builder. If the property is registered with the National House Building Council (NHBC), it'll come with a 10-year warranty and protection scheme. | The majority of new-build homes also come with a guarantee from the builder. If the property is registered with the National House Building Council (NHBC), it'll come with a 10-year warranty and protection scheme. |
| There are also other companies that provide warranties and insurance, such as BLP's building defects insurance. The downside of these guarantees is that they come with plenty of small print and making a claim under them is not always easy – or quick. | There are also other companies that provide warranties and insurance, such as BLP's building defects insurance. The downside of these guarantees is that they come with plenty of small print and making a claim under them is not always easy – or quick. |
| ... and the cons | ... and the cons |
| The biggest downsides are often cited as depreciation and space. "A new property is only 'new' for a very brief period, and you will be paying a premium of as much as 25% for its newness, much as you do when you drive a new car out of a showroom," says Greenwood. | The biggest downsides are often cited as depreciation and space. "A new property is only 'new' for a very brief period, and you will be paying a premium of as much as 25% for its newness, much as you do when you drive a new car out of a showroom," says Greenwood. |
| "So it's always worth comparing similar 'old' properties, in terms of value, space, rental value and so on. Check the price per square foot and compare it with the resale market so you understand the extent of any premium you're paying." | "So it's always worth comparing similar 'old' properties, in terms of value, space, rental value and so on. Check the price per square foot and compare it with the resale market so you understand the extent of any premium you're paying." |
| Space is an issue because new homes are often deceptively small. | Space is an issue because new homes are often deceptively small. |
| Plenty of buyers make a commitment to buy before the property is finished, and often rely on the developer's show home to get an idea of what they're signing up for. However, developers will use crafty tricks to make you think there is more space than there is. Furniture will often be minimal and scaled down to give an illusion of more space. | Plenty of buyers make a commitment to buy before the property is finished, and often rely on the developer's show home to get an idea of what they're signing up for. However, developers will use crafty tricks to make you think there is more space than there is. Furniture will often be minimal and scaled down to give an illusion of more space. |
| For example, a double bed will be 4ft rather than the more standard 4ft 6in. Flattering lighting, wall mirrors and glass-topped furniture can all add to the feeling that you're buying a much bigger home than you are. | For example, a double bed will be 4ft rather than the more standard 4ft 6in. Flattering lighting, wall mirrors and glass-topped furniture can all add to the feeling that you're buying a much bigger home than you are. |
| "One of the shocking things about new-build in my view is the size of the plot," says Greenwood. "Often there is not enough room to get a trampoline in the garden, let alone build an extension." | "One of the shocking things about new-build in my view is the size of the plot," says Greenwood. "Often there is not enough room to get a trampoline in the garden, let alone build an extension." |
| A shiny new property can also hide a multitude of sins. In the Which? survey that identified the extent of new-build niggles, a quarter of problems related to boiler issues, while 16% of people experienced difficulties with their utilities, and 12% were faced with structural problems. | A shiny new property can also hide a multitude of sins. In the Which? survey that identified the extent of new-build niggles, a quarter of problems related to boiler issues, while 16% of people experienced difficulties with their utilities, and 12% were faced with structural problems. |
| And don't presume that a survey is unnecessary. Greenwood thinks this assumption would be a mistake. | And don't presume that a survey is unnecessary. Greenwood thinks this assumption would be a mistake. |
| "We have pulled out of a number of new-build purchases for clients on the basis of a survey because things were unsound," he says. "I would recommend a full structural survey." | "We have pulled out of a number of new-build purchases for clients on the basis of a survey because things were unsound," he says. "I would recommend a full structural survey." |
| Buyers should also keep a close eye on the anticipated completion date. A mortgage offer is typically only valid for six months and the timetable to complete can drift. | Buyers should also keep a close eye on the anticipated completion date. A mortgage offer is typically only valid for six months and the timetable to complete can drift. |
| This means that if you arrange your finance early, you could lose your mortgage offer if the completion date drags on. | This means that if you arrange your finance early, you could lose your mortgage offer if the completion date drags on. |
| Case study: Trapped in a "wendy house" | Case study: Trapped in a "wendy house" |
| New-build homebuyer Felicity Hannah tells of her regrets: | New-build homebuyer Felicity Hannah tells of her regrets: |
| My husband and I bought our new home at the end of 2007, only to realise it was the size of a Wendy house – and that we had no way of selling it. | My husband and I bought our new home at the end of 2007, only to realise it was the size of a Wendy house – and that we had no way of selling it. |
| It wasn't just the estimated £23,000 in value that it almost immediately haemorrhaged thanks to the housing crash; it came with extra costs. | It wasn't just the estimated £23,000 in value that it almost immediately haemorrhaged thanks to the housing crash; it came with extra costs. |
| First, there's a so-called "new-build premium". People pay more for a new home with new appliances, so our 95% mortgage meant we plunged into negative equity even before the market crashed. | First, there's a so-called "new-build premium". People pay more for a new home with new appliances, so our 95% mortgage meant we plunged into negative equity even before the market crashed. |
| Even if the market had stayed booming, we couldn't have sold the property. They are often built in vast developments and as long as the builder is still building no one will look at the pre-owned houses. Buyers like us are effectively trapped until the builders finish, and that can take years. | Even if the market had stayed booming, we couldn't have sold the property. They are often built in vast developments and as long as the builder is still building no one will look at the pre-owned houses. Buyers like us are effectively trapped until the builders finish, and that can take years. |
| One of the "benefits" is that you can choose the fixtures and fittings. That sounds perfect but it's more like flying on a budget airline, nothing is included in the price. Carpets? Extra. A fence? Extra. Grass ? Extra. After paying for surveys and various fees, we couldn't afford even the basics, particularly as they were being sold at vastly over-inflated prices. | One of the "benefits" is that you can choose the fixtures and fittings. That sounds perfect but it's more like flying on a budget airline, nothing is included in the price. Carpets? Extra. A fence? Extra. Grass ? Extra. After paying for surveys and various fees, we couldn't afford even the basics, particularly as they were being sold at vastly over-inflated prices. |
| It's also difficult to live in the more affordable properties because the rooms are so small. In theory, our three-bed house was perfect for our growing family, but we had to use one entire bedroom and the downstairs toilet for storage. When we viewed the show home, the inadequate room size was concealed by three-quarter-scale furniture. The gardens are usually too small for a shed, let alone a conservatory or extension. | It's also difficult to live in the more affordable properties because the rooms are so small. In theory, our three-bed house was perfect for our growing family, but we had to use one entire bedroom and the downstairs toilet for storage. When we viewed the show home, the inadequate room size was concealed by three-quarter-scale furniture. The gardens are usually too small for a shed, let alone a conservatory or extension. |
| Thanks to the government's plans, we can't even sell to other first-time buyers; they're being helped to buy new-builds to support the house-building industry. | Thanks to the government's plans, we can't even sell to other first-time buyers; they're being helped to buy new-builds to support the house-building industry. |
| Top mortgages | Top mortgages |
| Chelsea Building Society | Chelsea Building Society |
| Yorkshire BS | Yorkshire BS |
| Yorkshire BS | |
| Provided by London & Country for the Guardian | Provided by London & Country for the Guardian |