The average new build property costs significantly more than an older home, so why would a landlord choose to spend the extra cash when expanding their portfolio?
The reality is there are many pros and cons to buying new build properties as buy-to-let homes and it’s not an easy decision to make.
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How many new builds are sold?
Most homes sold in the UK are existing properties, rather than new builds, but this is to be expected, since almost three-quarters of residential property was constructed before 1980.
Market analysts also point out there aren’t enough new properties being built to satisfy demand. The government had set a target of building 300,000 new homes annually by the middle of the 2020s. However, they have been accused of “watering down” their own target by no longer making it a mandatory figure, instead changing this to “advisory”.
The government hasn’t come close to hitting its target, with the highest number of new homes in any 12-month period being the 242,700 constructed between 2019-20. This has led to accusations that there simply aren’t enough new homes for the growing population, so it’s common sense that people are buying or renting older properties.
Data from the Land Registry shows the average price of an existing UK property is £268,481, compared with £396,713 for a new build – a difference of 23%.
Despite the shortage of new builds and the higher price tag, just why are landlords still choosing to buy new builds for their buy-to-let portfolio?
Greater energy efficiency
One of the main advantages of new builds is their greater energy efficiency, as they have an EPC rating of A or B. Older properties tend to have a lower energy efficiency rating, with the most common being E.
With argon-filled double glazing, thermal insulation, showers that use less water and energy-efficient kitchen appliances, a new build could save tenants up to £2,600 a year on energy costs, according to data from David Wilson Homes. This means a new build home can be up to 64% cheaper to run, making it an attractive proposition for tenants concerned about expensive energy and water costs.
In addition, the average cost of modernising an older property is £70,000, so as a landlord, buying an old buy-to-let home cheaply with the aim of renovating it could be a false economy.
Lower maintenance costs
The maintenance costs of a new property tend to be significantly lower than those of an old house. Consider that everything from the windows and roof to the light fittings and carpets are new. This means expenditure on maintenance should be just about non-existent for the first few years.
Once you’ve paid the initial cost of furniture packages for your rental properties, you shouldn’t need to spend much more on them for the foreseeable future. If you’ve purchased an older property, there’s a chance you’ll have to spend at least some money on it to get it up to scratch.
New homes also come with a ten-year warranty from the National House Building Council, so landlords can be sure they comply with the standards for design, workmanship and materials. If something goes wrong, the buyer is covered by the ten-year warranty for structural issues and a two-year warranty for fixtures and fittings.
Buying new build can be a lot less hassle, as after securing your buy-to-let mortgage and sorting out landlord furniture, this should keep you covered.
Serviced accommodation benefits
When it comes to serviced accommodation, visitors expect their holiday home to be modern and of a certain standard.
As a landlord, you may find it less hassle to buy a new property that’s ready to walk into, with modern furniture, fixtures and fittings. Otherwise, you may spend money on changing someone else’s older decor to ensure it meets the standards required by discerning modern renters.
Greater choice
When you’re buying a new build, there’s a good chance you’ll be able to request subtle changes to the design to make it more suitable for tenants. These can include choosing durable stain-resistant flooring, or washable paint for the interior walls, for example.
Data reveals more than one-third of new build properties in England and Wales are sold off-plan on average. This means investors can select their preferred properties in the early stages of construction, sometimes cheaper than market value.
When choosing a buy-to-let property on a new housing estate, you can view as many as you like and choose one with the layout and number of bedrooms that you require. When you buy an older home, the only changes you’ll be able to make are aesthetic, unless you spend more money.
Environmentally friendly
A new home is more environmentally friendly than 20th century builds. For example, they emit 1.4 tonnes of carbon each year, compared with 3.6 tonnes from an average older property.
According to the Home Builders’ Federation, collectively, new homes reduce the UK’s carbon emissions by more than 500,000 tonnes annually, compared with their older counterparts. Experts say we need to increase the percentage of new homes to meet the government’s net zero target by 2050.
While there are advantages for landlords choosing new build properties, there can also be disadvantages.
Quality concerns
Research by the Chartered Institute of Building has revealed there are buyer concerns over the quality of some new build homes. According to its report, New Build Housing: How Regulation can Improve the Consumer Journey, 55% of UK adults believe older properties are of a higher quality than their newer counterparts.
The study of 2,000 adults also revealed 32% felt new build homes were “poor quality”. Only 21% of respondents said they preferred new builds in general.
The CIB, a professional construction body, found 33% of adults had a “low level of trust” in house builders, fearing they wouldn’t build the properties to a high enough standard. They also pointed out these fears are largely unfounded, as home builders must ensure modern properties comply with a raft of construction standards.
Purchase price
Despite new builds being ready for tenants to move in right away, the higher purchase price still remains an obstacle for many cash-strapped landlords. Paying around 23% more for a new build, equating to around £88,000, is just a step too far for many landlords when it comes to getting a mortgage.
Some landlords simply prefer having more money in the bank rather than stretching their outgoings to the limit by having a large outlay. Those who are skilled enough to carry out their own maintenance and repairs on their rental portfolio won’t mind doing a little extra work if it saves them money in terms of the purchase price.