5 Things to consider when buying a new build property- By: James Hardy
The purchase of new build properties has proven to be very popular in recent years, but it has also received a fair amount of bad press. Here are a few areas to consider if you are contemplating the purchase of a new build property.
During the new-build property ‘boom’, buyers were expected to pay a premium of between 15 and 20 percent, higher than that for ‘second-hand’ properties. This amount was mainly due to the new, energy-efficient nature of new builds, and the popularity of kitchens as house focal points. In recent years, premiums for new builds have been changed due to stricter guidelines for the surveyors valuing homes as part of the mortgage approval process. Now, in general, there is no differentiation between the premiums for new-build and second-hand homes.
The new, stricter valuation rules are thought to be a direct result of mortgage fraud during the ‘boom’ years. It was found that some borrowers did not disclose the substantial discounts they were receiving, and instead were given loans based on the full asking price of the property. Many of these borrowers are now in negative equity, as their properties are worth much less than the price they originally paid. This is even after factoring in the discount they received. The resulting repossessions have meant that banks have been left with substantial debt problems. In turn, rates on new mortgages have been increased, and stricter lending rules have been implemented.
Following the repossession of many properties in negative equity, mortgage lending rules have changed dramatically in recent years. Lenders are much more cautious about lending, especially on loan applications connected to new-builds. Banks are now generally calculating the amount they will lend to buy-to-let investors using the price of the new-build home, minus the discount.
The problem of oversupply has been addressed by some property developers, with many now offering affordable housing for owner-occupiers using shared ownership or shared-equity schemes. One such scheme allows a buyer to purchase anywhere between 25 and 75 per cent of a new-build property. A mortgage is taken for this amount, and the rest is paid in ‘rent’. In a shared equity arrangement, you could buy 50-75 per cent with a mortgage, and then obtain an interest-free loan from a housing association or developer to cover the remaining amount. Both are excellent options to consider, especially in the difficult current financial climate.
Off Plan Buying
Off plan buying means to purchase a property before it is actually built. This method is once again becoming popular, despite the possible bankruptcy issues, where people have paid deposits on half-built flats and cannot raise the rest of the money. Jeremy Raj, of the solicitors Wedlake Bell said on the subject; “They are legally obliged to complete on the transaction. Damages are not even restricted to the difference between today’s market price for that property and the price that they contracted to purchase at.”
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