New build home valuation information for UK properties – Everything you need to know
A new build property seems like a smart bet. Moving in requires minimal work; they are more energy efficient than older properties, and plenty of government schemes are available to help you save for one.
That said, there is the likelihood that any new build home will lose value the moment it is no longer considered ‘brand new’.
Some lenders will only lend you a percentage of the market value. This means that many new homebuyers fall short of the property’s market value and either need to come up with a larger deposit or borrow more to meet the higher deposit required.
This difference in valuation and price can adversely affect your mortgage application. Here we’ll cover how new build valuations work and how you can make an educated decision about buying a new build property.
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How do New Build Valuations Work?
When you apply for a mortgage, your lender will conduct a mortgage valuation to check whether the property is worth what you’re planning to pay for it.
In a new build, this will depend on:
- How in-demand new properties are.
- The average property prices in the area.
- The value of labour involved to build the property.
- What materials the house has been built with.
Although valuations are not always needed, they’re a necessary precaution for most lenders involved in a new construction. A lender’s valuer will consider different factors during the valuation process to establish a true market value versus how the developer is setting the asking price.
A developer will regard how much it will cost to build the house in terms of land price, labour, and materials used.
Lenders want assurance that they will not lose money by lending to you. Thus, they’ll conduct their own valuation to verify the developer’s asking price to ensure they are not overlending and putting themselves in a position where reselling the house is difficult.
Do New Builds Lose Value?
New builds sell at a high price at first because they have never been lived in. New build homeowners benefit from the latest construction and energy efficiency standards. This means they won’t have to pay high bills or maintenance fees for years to come while living there.
Unfortunately, as soon as you move into a new home, it automatically loses its ‘new build’ status. Consequently, when you try to sell the house, you won’t be able to sell it at the new build premium price.
And if you plan to sell the property within a few years of buying it, chances are other homes in the same area haven’t risen in market value enough to get your money back, let alone make a profit.
Whether new builds lose value isn’t very straightforward, but there are steps you can take to avoid your new build losing value. Research homes in the area and what they’re selling for, how house prices have grown, and how much more expensive a new build is.
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Why Are New Build Mortgage Valuations Lower?
The main reason a mortgage lender may price a new build lower than you paid is that it is new and has no set selling price, which increases the risk for the lender.
If you look at why new homes pose such a risk to mortgage lenders, you can better understand why they undervalue new homes.
Risks
New homes are newly constructed using regulated and energy-efficient materials but can depreciate quickly in value and can be very difficult for lenders to resell.
They are also more likely to be built in high-risk locations, such as in areas affected by noise pollution and near busy roads, airports, landfill sites, sewage plants, and old mining areas.
As a result, this puts the property at risk and makes it difficult to resell it at its original selling price.
Depreciation
New build properties depreciate much faster than older properties. Once moved in, the new build is no longer considered ‘new’. The premium paid for the new building does not apply, thus reducing the asking price.
Generally, new builds are constructed as part of a new housing development along with other new properties in the area. Trying to sell a ‘used’ home can prove difficult as it can compete with other ‘newer’ homes in the same area that have not yet been sold.
This competition makes it difficult to sell new homes to new owners because the property appears to be worth less than other new homes. Therefore, in order to sell a house successfully, it has to sell at a lower price and thus has a lower mortgage valuation.
Are New Build Valuations Always Lower Than the Asking Price?
New build valuations are not classed as always being lower, however, there is certainly a tendency for them to be low. For many lenders, a new build is a high-risk property and might be harder to sell in the case of repossession, so they value them at a lower price.
When valuing a new build, lenders’ criteria are very different from those of property developers. New build properties are more difficult for lenders to assess because they don’t have the same long-term maintenance and repair records as older properties. This record helps lenders better assess the property’s risk and value.
A scenario that has most new build lenders concerned is the possibility of homeowners defaulting on their mortgage payments. When a homebuyer purchases a new build property and the building requires expensive repairs or deteriorates over time, these maintenance costs can make it difficult for the homeowner to keep up with their mortgage payments.
This can lead to mortgage defaults, leaving the lender out of pocket.
Additionally, lenders need to consider the potential decrease in value over time. All these things factor into new builds generally being lower than the asking price.
How to Prevent a New Build House from Losing Value
A new home valued below the asking price can put you in a difficult position. As most lenders aren’t willing to budge on their valuation, you may not be able to borrow the amount you need to buy a home.
There are a few things you can do in this situation:
Negotiate the initial price
Negotiate the initially agreed purchase price with the developer to one similar to other houses in the same area. However, this may not always succeed as developers have expenses and profit margins to meet.
Find a new lender
You can also lower your valuation by contacting a new lender or finding someone who will lend you a higher amount. However, this can attract a higher rate and cause your repayments to go up, so you’ll need a more expensive mortgage.
A mortgage broker can help solve this problem by finding you a lender with suitable and affordable interest rates as well as lending criteria you meet.
Increase the deposit
Another route you can go down is borrowing a higher amount to put down a larger deposit. The drawback of this option is that you may not have cash on hand.
Again, mortgage brokers can help you find a lender who will lend you the amount you need if your deposit is insufficient.
How Can a New Build Valuation Affect a Buyer?
A property valuation will provide valuable information and help you make an informed decision regarding your home. More specifically, they are important for new builds because if a lender undervalues the property, it will impact how much you can borrow.
Most lenders are only prepared to offer an LTV of 85% because they consider new builds risky. This means a down payment of 15% of the property value is required.
So, a new build property worth £200,000 will attract a mortgage of up to £170,000, and the buyer would need to deposit £30,000.
This is a significant amount of money, and a buyer who receives an unexpected valuation of a new home from a lender can break their budget and leave them in a tight spot.
Are New Builds Harder to Sell?
Not only is a new build property’s potential decrease in value risk for lenders, but they are also notoriously difficult to resell.
Several factors will influence the price of a new build property when the time comes to resell it. In particular, if you wish to sell before the development surrounding the home is sold out, your nearly new home will be in direct competition with the remaining brand-new homes available.
Location is another factor that influences the sellability of new build homes. Potential buyers may be turned away if the surrounding development is still ongoing or if it is located near an inconvenient location, regardless of whether the new build is ‘brand new’.
For these reasons, new build properties are best viewed as long-term investments rather than short-term investments.
Get Help from an Expert Mortgage Broker with Loan Corp
With few mortgage providers lending and many people needing help with new builds, seeking professional mortgage advice is a great first step.
Working with a mortgage broker can help you secure a new build mortgage without the stress and hassle.
With over 200 lenders on our panel, we at Loan Corp can:
- Find new build mortgage lenders whose lending criteria you meet.
- Find the best new-build mortgage deals depending on your priorities.
- Evaluate the terms and conditions offered and ensure they are affordable and suitable for you.
- Negotiate the LTV rates of a new build with lenders.
Contact us, and one of our expert mortgage brokers will get in touch with you to provide mortgage advice tailored to you and your needs.
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FAQs
Do new build properties lose value?
There is a prospect that any new build home will lose value when it is no longer considered ‘brand new’. Factors that reduce the value of a new build include:
- New builds are more expensive than similar ‘second-hand’ homes in the same area.
- The location is not always favourable.
- Demand can decrease due to overdevelopment in the area.
- The housing market might be down.
- New builds are not always built to a good standard.
How are valuations completed on new builds?
A professional valuer hired by the lender will inspect the new build and deduce its value, taking into account the location and size of the property, the materials used to build the house, the prices of other properties in the area, the demand for new properties, and other variables.