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The cost of new-build properties is increasing at a much faster pace than that of older homes, signalling a potential shift away from historical houses.
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Price of New Build Properties Increased 25.4% Annually
According to data from the Land Registry, the price of new-build homes rose by 25.4% annually to reach £367,219. In comparison, existing homes experienced a yearly increase of 8.6% to reach £264,684. The housing market has witnessed sustained growth since the beginning of the pandemic, primarily due to an imbalance between supply and demand. However, the data clearly indicates that new-build properties are far outpacing existing homes in terms of price appreciation.
This discrepancy persists despite the controversies surrounding new-build homes in recent years. Many homeowners found themselves trapped in leasehold contracts with exorbitant ground rents, rendering their properties unsellable. Additionally, numerous new builds were constructed with unsafe fire cladding, leading to a significant decline in property values. These issues have since been addressed, with the Leasehold Reform Act 2022 coming into force in June 2022 tackling unfair ground rents. Building Regulations have tightened to ensure that all new builds meet stringent fire safety standards.
Shift in Buyer & Rental Demand Post Pandemic
Multiple factors explain the price disparity between new and older homes, but the pandemic and supply shortages are key driving forces behind rising prices. A scarcity of second-hand properties has prompted buyers to turn to new builds, leading to a surge in the sale of family homes that were sold off-plan.
The pandemic had a profound impact on the housing market, prompting individuals to reassess their living and working situations. With the widespread adoption of remote work, many individuals now possess a home office and no longer need to commute to city centres. New builds have been designed to cater to this shift minimising additional renovation requirements.
Chris Gardner, joint CEO of the development lender Atelier, notes that new builds are emerging as winners in the post-lockdown property market due to their ability to offer exactly what buyers desire. The past two years have led people to thoroughly consider their housing requirements, prompting astute developers to adjust their designs accordingly. Gardner cites examples of financing several developments consisting of a dozen or so homes that perfectly match the preferences of buyers in those areas, incorporating ultra-energy-efficient designs and sustainable construction techniques.
New Builds Offer Higher Levels of Energy Efficiency
New build-properties offer several advantages, which contribute to their higher price tags. They entail lower maintenance costs and are generally more energy-efficient, resulting in reduced gas and electricity bills. Although the government has introduced measures to lower energy costs, such as cutting VAT on materials for energy-efficient measures and implementing a grant scheme for replacing old boilers with heat pumps, the expenses associated with improving energy efficiency remain high. A survey by tax advisers Cornerstone Tax reveals that 45% of homeowners have considered making their properties more energy-efficient but find the costs prohibitive without government support.
Private rental sector tenants are also seeking quality rental property with higher levels of energy efficiency due to the cost-of-living crisis as energy bills have soared, creating upward pressure on rents for new build property due to the supply and demand imbalance. For buy-to-let property investors considering short-term rentals for their property, new build offers a boost to their bottom line due to the reduced cost of utilities with more energy efficient properties.
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New Build Properties Viewed as Less Risky by Mortgage Providers The availability of mortgages for new builds also contributes to the price disparity as some experts suggest that mortgage providers are more inclined to lend to buyers of new-build properties due because they are seen as less risky than older homes.
