The Problems with Buying a New Build Property… and How to Avoid Them
We investigate common problems with new build properties and show you how to avoid them when buying a new build home.
Article By: Francesca Burke
Last Update: December 2018
New-build properties are increasingly common, with the government estimating that 300,000 new homes should be built annually to meet demand. In theory, new builds have fewer problems than older buildings (they should be better insulated, more economical and more environmentally friendly).
But more than half of buyers of new build homes in England report problems with them, according to a March 2017 survey. For example, in December 2018, the Victoria Derbyshire programme found that hundreds of homes across the UK were built with weak mortar and require repairs. Additionally, homeowners on private estates struggle with unregulated and uncapped maintenance costs. Furthermore, there can be major problems with leasehold homes whose freehold has been sold on without buyers’ knowledge. Given that the average new-build home costs £255,543, and takes a lot of time and effort to organise and build, these costly additional challenges don’t exactly encourage new builds! In this post, we look at the issues associated with new build properties and the steps you can take to avoid them.
Freeholders own their property and the land it’s on, whereas leaseholders just own their property for the length of the lease, and pay the freeholder ground rent. It’s a simple concept, but in reality, many new build homes are sold as leasehold without the buyers realising that they don’t own the land their property is on. The freehold is then sold on to an investment company without the owners’ knowledge or permission. Often if the homeowners want to buy the freehold, the new company quotes them inflated and unaffordable prices. This practice is not currently illegal, although there are growing calls to ban it.
Problems with Ground Rent
Leaseholders pay the freeholders of their property ground rent, with additional charges to alter the property. According to the Daily Telegraph, the average ground rent in the UK is £371 per year, plus costs for alterations. Furthermore, in 2015 43% of new build homes in England and Wales were leaseholds, up from 22% in 1996; property builders are investing in what is, for them, a lucrative income stream. After completing the property, they sell the freehold to private companies which in turn earn significant revenue from ground rent.
Furthermore, in recent years ground rent has increased exponentially. In some cases, ground rent is set to double every 10 or 25 years, which leaves leaseholders unable to sell their property as no buyer wants to take on a ground rent of several thousand pounds per year.
In 2018 the government announced plans to make most new build properties free hold and to cap ground rent at £10, but time will tell if those plans come to fruition!
Maintenence Costs: Badly Constructed Buildings
There are significant and often stressful maintenance costs associated with buying a new build property. Many are shoddily built to a strict time limit and require severe structural improvements. Just some of the issues reported include gas works in breach of regulations, insect infestations and blocked drains. Although new build homes come with warranties – it is actually down to the builder to fix problems up to two years after completion – warranties often cover far less than buyers realise.
What’s more, housing developers are coming increasingly under fire for profiting from the government’s Help to Buy Scheme by selling sub-par homes to buyers desperate to get onto the property ladder. In early 2017, after pressure from homeowners, Bovis Homes announced it would pay out £7 million to homeowners to repair poorly-built properties.
Maintenence Costs: Unadopted Land
Furthermore, many private estates come with areas of unadopted, or common, land. The estate owner owns the unadopted land but can legally sell it or sub-contract it to a private company. The company then passes on maintenance costs, at an inflated price, to homeowners (both leasehold and freehold). What’s more, homeowners pay full council tax but the council doesn’t maintain the land because it’s on a private estate! Maintenence costs are currently uncapped and unregulated, so if you’re thinking of buying a new build home, check whether the unadopted land will be adopted by your local authority. If the answer is no, consider rethinking your purchase.
How Do You Avoid Issues with a New Build Property?
Are you considering a new build home? Your first step should be to consult a solicitor to ensure you know exactly what you’re buying. For practical advice from other property owners, visit the Homeowners’ Rights Network (HorNet). It may also be worth investigating your property developer to check their record. Take careful note of all the small print in your paperwork, because the more you understand about what you’re taking on, the easier it will be to spot and challenge unfair loopholes or shoddy building practices.
There are proposals to tighten up housing regulations – in fact, a government consultation took place in summer 2017. It remains to be seen whether there will be a change in laws regarding leaseholds, ground rent or maintenance costs but we’ll keep you updated!
Have you experienced an issue with a new build property? Do you have any advice for new buyers? Let us know in the comments!
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