Mortgage Rates

Another consideration is that we’re facing increasing uncertainly in the mortgage lending markets.  In addition to rising interest rates, we’ve seen mortgage offers withdrawn, and five-year mortgage deals offered at a lower interest rate than two-year deals. Crazy. Expert commentators forecast that in the short-term property prices will most likely fall as higher interest rates and cost of living increases impact negatively on affordability.

Unless you have a compelling reason to move, it may be better to wait a few months until the market settles down. However, you need somewhere to live and buying, over the long term, is always better than renting. If you buy wisely.

Dream Home

You’ve found your dream home, worked out your future costs and yes you can afford it! A very exciting time, but time to also stop, take a breath and run through our new-build home buyer’s checklist:

1. What is the buying process?
2. Is the price negotiable?
3. Is a new-build a good choice?
4. What are the potential purchase and ownership issues?
5. I’ve bought, now where can I go for help?

New home buying process

The buying process is different with a new-build home in that the developer controls the timings. This is not an issue if you are renting with say a one month notice period, but otherwise it can be fraught with problems.

Once you have a mortgage offer in principle and you know you can afford the monthly payments you are ready to go ahead. You will then make an offer on the property. The developer may then ask you to speak to their financial adviser and complete a pre-qualification questionnaire to confirm your ability to purchase the property.

When the offer is accepted you will be asked to pay a reservation fee. This is usually around  £1000. It will be deducted from the sales price when you complete the purchase. However, if you change your mind, you will generally lose this fee. Always check the terms and conditions. Some early-stage developers offer an ‘early bird’ reservation fee which means you will have first refusal on a property when it is released for sale. This fee is fully refundable if you change you mind.

Generally, the developer will then pressurise you to exchange contracts within 28 days of reserving the property, although some developers are now moving this to 45 days as the pre-exchange process is taking longer and longer. Exchange is when you pay your deposit. If there is a delay with the local searches, the developer may suggest you take out ‘local search indemnity insurance’. This is important as some local authorities are experiencing long delays in responding to local search requests. Our advice is not to exchange before you have all the local searches and other reports, and always take advice from your solicitor.

Never forget that the developer is fully focused on their cash flow, not what is best for you.

Once you have exchanged contracts, the developer will stipulate that at some point in the future you will be given a property completed date, and you will have two weeks to complete the purchase and take ownership of the property. Again, not an issue if you’re renting, but can be tricky if you have a property to sell.

When you exchange contracts. the new-build home may be six months or more from being finished. If you are in a chain the other purchasers may not be happy to wait this length of time and then only have two weeks’ notice to arrange to move. When we’ve raised this with several developers, they suggest the new-build home buyer simply moves into rented accommodation!

Another consideration is that mortgage offers have a six-month cut-off. If your new home completion is delayed, you may risk losing the mortgage offer.

There may be additional ownership costs that are not fully transparent at the early stage. Many new developments include an ongoing annual service charge or ‘fleecehold’ as this is being dubbed in the media. This will be to maintain the common landscaping areas on the development and will include looking after the roads. This means that the roads will not be adopted by the local council, even though you still pay council tax!  Ask for details on how the service charge will be administered and the rate at which it will increase. When you come to looking at your conveyancing costs there may be an additional line item to look at this service charge.

When appointing a solicitor, choose one with experience of dealing with new builds. They will check the planning permission, supply of services such as water, sewers, electricity, the status of the roads and be familiar with new-build service charges.

If you have a home to sell, you may be tempted by a part-exchange offer. These certainly help smooth out the whole process but be aware that you will be offered substantially below the market value of your property. Recently a flat sold for £350k as compared to the part-exchange valuation of at £290k. Never forget, developers are businesses set up to maximise their profits!

Negotiating on the advertised price

The developer will tell you that the price is not negotiable, however you should always be prepared to negotiate. If the developer is not prepared to lower the price ask about other incentives such as a stamp duty contribution, first year mortgage contributions, cash-back offers and internal finish and appliances upgrades.

The developer will most likely not want the headline price of the property to be reduced as they will have many more properties to sell!

You may have a better chance of negotiating these types of offers at the start of the development when the developer may need to quickly sell properties to help fund the next tranche of new builds, or near the end of the development when the developer wants to finish up and leave.

Never pay more than what you think the property is worth and always think about how easy it will be for you to sell in the future. There’s lots of information available on property prices online, so do your research and never offer more than you can afford.

New-build benefits

The biggest benefit is that the new build should be more energy efficient and meet the Government’s carbon reduction targets. The Future Homes and Buildings Standard comes into force in 2025, but in the meantime, developers with new developments need to comply with the June 2022 Building Regulations. These set the standards in England for the design, construction, and alteration of buildings. New builds must include carbon reducing features such as solar panels, heat pumps and improved insulation, plus ventilation to reduce the spread of air borne viruses and mitigate overheating.

Be aware, however, that currently only transitional arrangements are in place:

“…if a building notice, initial notice, or full plans for building work are submitted to a local authority before 15 June 2022, then provided the building work commences by 15 June 2023, work on that individual building is permitted to continue under the previous standards.” Source: https://www.gov.uk/government/news/new-homes-to-produce-nearly-a-third-l...

In essence your new-build home should be future proofed and even if it does not include the above carbon reducing features, it should be built so that these can be easily added later. Check for this!

Also check if there will be electric car charging points, both at your property and for visitors. If not, will the wiring be roughed in by the developer so that these can be added in later? A lack of electric car charging points could impact the future saleability of the property.

Other advantages of a new-build home include the 10-year NHBC (or similar) warranty covering structural defects and most developers also provide their own two-year warranty. You will also be able to report ‘snagging’ issues when you first move in, but make sure you understand the process for tracking and resolving these issues.

We recommend keeping your own snagging list, adding to it as needed and include even minor niggles (as these may grow bigger). You could also consider arranging a professional snagging survey to make sure all issues are identified and fully documented.

Unfortunately, once some developers have left the site, they are uninterested in sorting out post purchase problems and when they do, the work can be of a poor quality. Basically, the property is sold, the developer has moved on, and there is little motivation to rectify any issues.

If you buy a new property off-plan you may have the opportunity to personalise your home by choosing carpets, kitchen fittings etc. Plus being brand new there should be less or no major maintenance work required in the first few years. Finally, you will be buying with no onward chain so this can make the whole process easier.

Potential issues

Looking firstly at the property itself, new builds on estates are often quite small, have limited storage space and with postage stamp gardens, or tiny balconies. Think about how you would live day to day in the property and whether your furniture and belongings will fit in. Ask about car parking for yourself and visitors – there is nothing worse than a residential road crammed full of parked cars. Is there a bus service? Pedestrian and cycle paths? Is there enough storage space? What are the dimensions of the garden?

Always take a compass with you. Find where the sun is at various times of the day and whether this suits your lifestyle. Try and visit the new home at different times of the day and at weekends and weekdays.

New development glossy brochures and websites always look fabulous, although once you’ve seen a few you begin to realise that they all look much the same! It’s worth researching online local authority planning permission requests to see if there are any red flags. We looked at a development recently and found out it was adjacent to a sewerage works. This may not be a problem but not an aspect of the development mentioned in the marketing materials. You’ll also be able to find out if the roads will be adopted by the council and other facilities that have been stipulated as part of the planning application such as improved road access to the new development, future schools, leisure centres, playing fields, allotments, open spaces etc.

Initially you may have problems with broadband and other services, and new developments may face issues having Royal Mail post and courier deliveries. These snags just take time. If you are one of the early residents you may have to live with construction traffic, noise, and dust for a while.

Finally, be aware that there may be a delay in the construction of your property. If you are selling you may lose your buyer, or as noted above, your mortgage offer may run out.

Like any problems, being forewarned means that you are in a better position to resolve these issues should they arise.

Where can I get help?

Things do go wrong and so that is why the Government launched on the 4th October 2022 the New Homes Ombudsman Service.

“The NHOS (www.nhos.org.uk) provides robust independent redress for new build buyers who have issues with their new home or developer. Customers buying a new home who are not happy with the quality of their new home, or the service provided by their Registered Developer will be able to approach the NHOS if their complaint has not been dealt with to their satisfaction by their developer. The NHOS, whose decisions will be entirely independent of the NHQB and of industry, will consider the evidence provided by the customer and the developer to reach an adjudication.”

We recommend you check to see if your developer is registered with the scheme and if not ask them why not. Let’s hope this initiative has some teeth!

Next steps

The information we have provided is by no means exhaustive, but we hope it will help you ask the right questions when looking at a new-build home.

 

Article written by Susan Children