17 July 2022

Should landlords buy new build or older property?

By Paul Brett, Managing Director, Intermediaries, Landbay

Most buy-to-let investors purchase older property rather than new builds and there are reasons for that but there are pros and cons to both.

New build comes with a price premium and there is a big difference between the prices of old and new property. According to the latest Land Registry data, the average new build in January sold for £373,663, a rise of 20% year-on-year. Meanwhile, the average existing resold property was £268,481, which is an annual increase of 9%.

With new builds being more expensive than older property, this may impact on the yield, although this could be compensated as rental prices are often higher on newer properties. New build should require less maintenance and will have a 10-year building warranty to cover for any structural repairs needed.

One of the main advantages is that new build homes are more energy efficient than older properties with the majority of them having an EPC rating of B. They will be better insulated and have lower energy costs.

Some homes are even being built with future legislation in mind such as installing heat pumps instead of gas boilers and electric car charging points.

With the high demand for house buying since the start of the pandemic new builds are selling well, so much so that off plan sales are rising. According to the estate agency Hamptons, 37% of new builds in England and Wales were sold off plan in 2021.

However, there are delays to new build completions stemming from the pandemic with shortages of building materials and labour so buyers should bear this in mind.

The majority of new builds we lend on are EPC rated A to C. But like all lenders, we do have a back book that contains some older properties that are rated D or lower. We recently had our mortgage book analysed by a third party which found that in comparison to the private rented sector as a whole, we compare favourably.

Another advantage of an A-C rated property is that it is eligible for a green mortgage which comes with a discount on the interest rate. Brokers should be making their landlord clients aware of this, for both new build and older property. If landlords can upgrade their D or lower rated properties to C, they can apply for a green product when remortgaging. As awareness of green mortgages grows, brokers and landlords should be asking whether a lender incentivises higher EPC rated property.

This doesn’t mean we won’t lend on properties that are D or E rated as it is legally acceptable to do so. But it does mean we will be keeping a close eye on EPC ratings as the deadline for rental properties being at least C rated draws closer. We are also keenly awaiting to hear from the government when those dates will be finalised or if the proposed 2025 and 2028 dates are to be extended.

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