The Help To Buy Equity scheme has provided a massive benefit to most first time buyers who would not have normally been able to purchase a home. The Government gives you 20% of the value of the home as a loan with no interest payable for the first 5 years.
Although this is a great option, I feel that it has resulted in most First Time Buyers purchasing over priced homes and also going above their budget. It has allowed developers to inflate prices on properties.
In this blog post, I will share some tips on what to look out for when purchasing a new build homes and especially using a HTB equity loan.
- Help to Buy Schemes AND Cost to the FTB
The Gov’t HTB scheme albeit being a great opportunity to assist FTBs in getting on the property ladder has resulted in increased sale prices of new builds. Most FTBs have bought property that are above their budget due to the equity loan. The implications of these are known.
A 5% deposit also presents more risk to the buyer.
- Developers’ High Pre-tax Profits
Developers are known to obtain a 25-30% profit on house sales. The Bellway 2020 mid-year meeting (transcript available here) shows this data clearly.
I do understand the importance of profits and how it supports a company’s overheads. This however, results in exorbitant house prices and impact on the housing market in different ways.
- Price per Square Footage
The premium and supposed benefit of buying a new home and considering the point in Item 2 above has resulted in price per square footage that is not representative of similar properties in the same town.
E.g. The 2-bed end-terraces house at Crown Fields by Bellway offers an approximate total floor area of 746sqft (this includes hallways etc). With a list price of £279,999 it implies that the cost per square footage of this property is an extortionate £375/sq.ft.
Most FTBs would not do this assessment/analysis and comparison with similar properties and if they did, may overlook it because of the novelty of owning and living in a build property.
For developments with different developers I would suggest first time buyers do the same calculation for similar properties and compare. Do note however, that finishes may impact these prices.
- Development / Estate Management and/or Service Charges
It is important that you check with the Sales Agents and/or Quantity Surveyors to confirm is the property is freehold or leasehold.
Do note that some new build houses albeit being freehold, still have an annual management charge to maintain open and communal areas. It can be as high as low is £200 a year meaning an extra £17pcm. It may not seem a lot but this is usually index linked and to the RPI or similar; over the years this may add up and present problems when you come to sell. (Refer to this article for leasehold issues that are ongoing)
What are estate management charges for:
- Upkeep of communal and green spaces
- For maintenance of roads that are not conveyed to the council
- Street lighting
- For flats, maintenance of lifts and other shared amenities and spaces
- Check Council Tax Bands
Most council tax bands will not be confirmed until sales have completed. It will be advisable for first time buyers to do their own research; contacting the council for an estimate. This helps with budget planning.
Adding the aspect of management charges (likely to increase by RPI each year) implies more costs than most FTBs have reflected on.
- Availability & Location of Transportation
With the aim of the Government and local authorities to provide housing for the populace, there is an increase in the development of both greenfield and brownfield sites. These sites are usually not walking distance from a train station OR on regular bus routes.
Check for local traffic should you wish to drive to the station especially for commuters.
- Sec 106 Application Approvals
First time buyers will usually not read these documents. However, if you do not, there are some things you have to check and know.
Example, there is a new development in Aylesham, Canterbury with owners left in utter darkness at night because there is no street light. The Developers – Persimmon Homes are arguing it was built in line with local planning consents and did not include street lighting to any of the private roads.
So … whether this was an oversight by the Planning Officers or a vain attempt to cut cost by the developers despite charge annual management fees, I could easily say that CD, 2015 principles and designing for safety should have been considered.
You would want to be safe in your new house and neighbourhood so pls ask these questions.
Conclusion: I hope this has helped you. In my next post, I will discuss and compare/contrast houses on the same development and some few tips on helping first time buyers make a decision.