New build homes
Liz Syms, CEO and Founder of Connect
Initially, it’s crucial to recognise that newly constructed homes are often more expensive than older residences. This can impact upfront expenses, rental returns, and long-term property appreciation. However, this additional cost can be justified by including modern conveniences, improved energy efficiency, and lower maintenance expenses.
The quality of construction in new build homes holds significant importance. A well-constructed property results in reduced upkeep costs and enhances tenant satisfaction. Engaging with a reputable developer who ensures a top-notch build can safeguard your investment.
Newly constructed homes boast various advantages. Many adhere to higher energy efficiency standards, with government data revealing that 85% achieved an A or B rating. This translates to lower utility expenses for tenants, potentially saving over £2,000 annually. Such energy efficiency can drive tenant demand and justify premium rents, aligning with the growing popularity of sustainable living. New build homes often showcase contemporary designs, updated amenities, and the latest appliances, making them appealing to potential tenants.
The recent Minimum Energy Performance Bill update underscores the requirement for all buy-to-let properties to achieve a minimum Energy Performance Certificate (EPC) rating of C by 2028. Anticipating this legislation, investing in a new-build property that already meets these standards is an enticing prospect for investors, eliminating the need for additional upgrades.
Furthermore, certain builders offer incentives for property investors. Take Bovis, for instance, which provides a sale and leaseback scheme. This program ensures property investors a guaranteed rental income for a predetermined period, presenting an attractive hands-off investment opportunity with a secure income stream.
Considerations for New Build Homes Investments
However, it’s crucial to be mindful of certain challenges. New leasehold properties, in particular, present additional expenses such as ground rent and service charges, impacting potential returns on investment.
Another factor to weigh is the risk of block saturation. If property investors acquire a significant portion of new development and flood the market simultaneously, rental income might decrease unless ample demand exists in that area.
When venturing into new build homes, it’s essential to consider lender criteria. Most lenders cap the loan-to-value (LTV) ratio at 75%, with limited options available at 80%. Some lenders consider builders’ gifted deposits at the standard 5%, but the treatment of this contribution in the overall value varies among lenders, demanding careful scrutiny by advisers.
Moreover, there’s a noteworthy trend of lenders offering green buy-to-let mortgages. Clients may enjoy advantages like reduced mortgage payments or fees through these environmentally friendly incentives from select lenders.
In summary, while new build homes buy-to-let investments hold considerable potential, they are not without their distinct challenges. Advisers play a crucial role in guiding investors through considerations such as property premiums, construction quality, and tenant preferences, helping strike a balance between potential rewards and inherent risks. Diligence and sound mortgage advice are paramount for success in the new build homes buy-to-let market.