Buying new makes sense for many property buyers. When your home is a new build you aren’t inheriting issues from previous owners. If you purchase early enough in the process, you may also have the opportunity to direct elements of the construction, such as the materials used for the flooring or the appliances in the kitchen.
The fact that new builds are more likely to have been put together with a focus on the needs of the next generation of buyers is a further attraction, whether that’s an electric vehicle charger, solar panels or heat pumps rather than a traditional boiler.
And while buying a new build can present additional funding challenges for purchases, I’d argue the attitude of lenders can make a big difference to just how accessible they end up being.
The deposit challenge
One of the biggest hurdles any homebuyer faces today is the deposit. Persistent inflation and rising bills have meant that we are all having to find a way of dealing with increased outgoings, making it all the harder to set any leftover money aside towards a deposit.
This has been made tougher still by house price growth. As prices rise, so too does the size of the deposit required to secure the property. And house price growth has remained strikingly high, with the latest figures from the Office for National Statistics showing annual growth at 3.5%. With an average house price now above £265,000, getting a sufficient deposit in place is far from straightforward.
The new build premium
This issue is exacerbated further if the buyer is hoping to purchase a new build property. Being the first owner of a property comes with a premium, potentially tens of thousands of pounds extra that the buyer will have to stump up from the off.
For example, data from Land Registry found that in February of this year the average price paid for an existing property stood at £286,000, but for a new build this rocketed to nearly £450,000.
That sort of premium could be an issue for many would-be buyers, no matter how much they might prefer to go for a new build. Builders and Government planning agencies should take note too - they both have a big role to play in delivering more affordable options, offering would-be buyers an accessible route into home ownership.
Supporting new build buyers
In years past, we had Government schemes in place which made it easier for homebuyers to secure a newly built property. The Help to Buy scheme for example was incredibly effective, supporting the purchase of almost 390,000 homes over the decade in which it was in place.
With calls for a replacement scheme having grown louder of late, it does not appear to be on the cards, with the Government instead opting to introduce a permanent mortgage guarantee scheme to boost high LTV lending. While such a scheme is welcome, only time will tell how effective it is for new build buyers. After all, there is nothing to stop lenders limiting their high LTV lending solely to existing properties, meaning would-be new build buyers still have to save much larger deposits.
This is where lenders need to step up. If we are serious about supporting the next generation of home owners, then we need to prove it by delivering lending that actively helps them meet their ambitions, rather than finding reasons to block progress.
First and foremost that needs to be lending at high LTV both with the mortgage guarantee scheme and separate to it. If lenders assess affordability properly, then it should be possible to support buyers with modest deposits. When we adapted our criteria last year, it was with this in mind, which is why we can lend up to 95% on certain types of new builds, and in certain locations.
But lenders can go further still by being more flexible about the source of that deposit. Some developers will offer deposit help as an incentive to buyers in recognition of the challenges faced, and if lenders are willing to accept that as the sole deposit, it can open up ownership to a much broader range of people.
We can lend up to 100% in some cases thanks to how we treat builder incentives. This helps make new builds a realistic option for the right buyers, even if they’ve struggled to save for a deposit.
Opening the door to new build
New build properties will always be attractive to those hoping to avoid the maintenance worries and costs that come with older properties. And if the Government’s drive to increase the rate of production of new homes bears fruit, then would-be buyers will have far more new builds from which to choose in the years ahead.
But if we are to ensure these properties are genuinely accessible, then lenders need to go the extra mile in both embracing higher LTV lending and being more flexible around the source of deposits. Common sense lending could open the door to a swathe of borrowers who would otherwise struggle to buy a new build through no fault of their own.
