Should landlords consider buying new build property?
By Paul Brett, Managing Director, Intermediaries, Landbay
The vast majority of properties that are sold in the UK are existing homes as opposed to new build but that is not surprising as more than 70% of residential property was built before 1980. And of course, the UK is not building anywhere near enough homes to house the growing population. The Government has even watered down its target of 300,000 new homes a year by the mid-2020s making it an ‘advisory’ figure instead of ‘mandatory’.
But is 300,000 new homes pie in the sky anyway? In 2021-22 there were 232,820 net additional dwellings in England. This was 10% higher than the previous year when new housing supply stood at 211,870, however, construction was disrupted then due to the pandemic. The highest figure this century was 242,700 in 2019-20.
Some landlords are opting for new build properties even though they are more expensive than second hand homes. The latest Land Registry data, which is for October 2022, shows the average new build home sold for £396,713, compared to the average existing property at £268,481, a difference of £86,044 equivalent to costing 23% more.
That’s a big difference so why would a landlord pay the extra premium for a new build?
One of the main reasons is energy efficiency. The Minimum Energy Efficiency Standards (MEES) in the private rented sector state that all rental property must have an EPC rating of at least E, unless landlords apply for and are accepted for exemption. In addition, there are the proposals to change EPC ratings to a minimum of C by 2025 for new tenancies and 2028 for existing tenancies.
The majority of new builds have an EPC rating of B, so landlords would not have to worry about MEES, or undertake any home improvements to bring the property up to the energy efficiency standard. Homes will be better insulated and have lower energy costs, which will be appealing to tenants who are willing to pay extra in rent in exchange for lower bills and a brand new house or flat. 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.
According to the Home Builder Federation (HBF), buyers of new flats save over £2,000 a year on household bills, equivalent to £174 a month. For buyers of new build houses, the savings are even greater at £216 a month or £2,600 annually. New build properties are also more environmentally friendly, emitting 1.4 tonnes of carbon a year, compared to the 3.6 tonnes from existing properties. Collectively, the HBF says new build home buyers are saving over £500 million a year in energy bills, and reducing carbon emissions by over 500,000 tonnes. More of this will be needed if we are to reach the Government target of net zero by 2050.
A new build also comes with fittings, fixtures and white goods so there should be no need to carry out maintenance for a while or replace a broken fridge. There is also the 10-year building warranty to cover for any structural repairs needed.
Property investors can buy off-plan, sometimes below current market value in the early stages of a development and select their preferred units. In 2021 more than one in three new builds in England and Wales (37%) were sold off-plan.
However, there may be a slowdown in house building this year with some of the big housebuilders saying there will be fewer completions this year, as sales have been slowing down. With house price growth slowing too, there may be more opportunities for landlords to invest in new build.
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