Posted on Jan 07, 2020
With new-build developments becoming increasingly on the rise with government figures showing 162,180 being built last year, this will mean that many of you on your house hunt, whether this being for a first-time buy or property investor will almost certainly come across a new build on your property search. But why is it, so many of us are taking a plunge into these?
Background into new Homes and why they are appealing
Well, when taking into consideration a new build home you have the benefits of being able to simply unpack and go! These new homes are a blank canvas for you with being completely fresh, sparkling and new; decoration, kitchen, and bathrooms. Simply, bring in your belongs and you are ready to start your new housing journey. Hypothetically you should have no concerns about damp, building structure or having to redecorate if the previous occupants' design does not match yours. Keeping the idea of design in mind, you may have the option of being able to have a say in the design if you are buying off-plan as in some cases you can select the fittings and perhaps the layout. Really allowing you to make it your own. Your final consideration around the property design is again. These are completely new build properties; this means you will be living in a modern and top-spec property! In some cases, even having the latest smart features giving you that new and modern feeling you are really hoping for from this property.
And now, having the design of your dreams and the latest features is great… Abiding that you can afford this and this is also helped due to the fact that new builds have to comply with the latest building regulations. Resulting in these properties being far more energy-efficient than the older properties of which you may have stumbled across. With data from energy performance certificates showing that over 80% of new homes have the highest A or B ratings which compares with just 2.2% of existing properties.
However, how do you put yourself in the position of being able to afford this if cash buying is not an option with recent stats showing (new homes cost more than second-hand homes)? This is where government schemes can help….
Now, when you are looking at purchasing your new home and if you are not in the position to buy cash or solely through a mortgage, this may be when you look at one of the Government supported schemes. The Government has 3 main schemes in which they have set up to support new homes purchases and the first one being the help to buy equity loan.
The help to buy equity loan is a government set up scheme which is solely focused on new builds. This will allow you to borrow up to 20% interest-free for the first 5 years, however, you will need to have a minimum of at least 5% deposit and meaning that potentially 75% will be covered by your mortgage for properties of up to £600,000.
Now, with all of Government schemes that will be available, you will have some restrictions in place:
- You cannot exceed a property value of £600,000.
- From April 2021 you can only benefit from this if you are a first-time buyer.
- You cannot rent out your existing property and buy a second home through help to buy.
- You cannot buy through help to buy if you already own land with residential planning use in place.
- You can only take out a repayment mortgage for this.
Now, what do are your considerations:
- As with many other new possessions and a new car being a great example, new builds depreciate in value meaning you need to be aware of house prices dropping and the risks of falling into negative equity.
- You have other costs involved when buying a new home such as stamp duty, legal fees and further hidden costs which can amount to typically a further 7% on top of the property cost.
- You have 5 years interest-free of your equity loan so it is advisable to pay as much of this as possible within that time.
- You are borrowing a % fee and not a fixed fee. Meaning if you have borrowed 20% and the house property increases in value so will your owed amount.
By no means, is this all of the information regarding the help to buy equity loan scheme, however, this is an insight into.
Next, we have option 2 and this is through a Shared Ownership scheme which in simplistic terms is, you will purchase a percentage of the house, typically between 25 and 75% of a property. Leaving you to pay rent on the remaining share of the house which will be at a discounted rate from the housing association or the private developer. Alongside this, these properties will usually be leasehold properties, and this will result in you having to pay a monthly service charge as well to contribute to any major maintenance works.
- Renting / sub-leasing is not allowed.
- It is likely that you will need permission to make structural alterations and in some cases to redecorate the property.
- You have a risk of falling into negative equity.
- You have the option to purchase further equity in the property, however, you will need to take into consideration:
When buying into a shared ownership property you will also have the ability to buy more of the home by what is defined as ‘staircasing’. Simply further shares can be bought in increments of 10%, which in turn reducing your rent of the property.
The final scheme that we are going to touch into is the Help to Buy ISA is again another government scheme which was introduced in 2015 with the aim to give first-time buyers a boost with savings and to making it onto the property market. The breakdown of how this works is simply for every £200 which you deposit, the government will top this up by an extra £50. Resulting in you receiving a bonus of 25% tax-free savings.
If you are considering the help to buy ISA as your option, simply these are your considerations:
- It is only available for you if you are a first-time buyer or buyer over 16.
- Secondly, you can make a deposit of £1000 when you open your account
- You have no minimum monthly deposit, however, your maximum is £200 a month.
- In order to receive your bonus, you are required to have a minimum of £1600 saved and in turn, the maximum bonus available is £3000. Meaning you will have saved £12000 to receive this.
- Now, a big point to think about here is that if you are buying with a partner, you can both open separate ISAs and both benefit from the savings of the individual accounts.
Now it is looking at the finer details of how this works, so… Your 25% bonus can be drawn upon purchase of your first home and this will then be applied for by your conveyancing solicitor as part of the conveyancing process. Along with the previously mentioned price caps of how much you can save with this, you also have a limitation on the house budget of which must not exceed £250,000 unless you are in London and in this case, your limit will be £450,000.
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