New-build homes set for recovery

Lower prices and higher-quality developments are drawing homebuyers back to the beleaguered new-build property sector – and analysts now claim that asking prices represent good value.

The buy-to-let boom and bust made “new-build” a dirty word, as over-inflated valuations and an oversupply of stock sent property prices tumbling. But substantial price falls during the downturn, a limited supply of stock and a change in the typical buyer profile have persuaded property analysts that now is a good time to buy.

Having fallen more than the rest of the market and rebounded less, mainstream new-build prices are generally further below their peak than prices on the “second-hand” market.

According to the Nationwide House Price Index, the average UK house price was 8.4 per cent off its peak at the end of the second quarter of 2010, compared with 12.1 per cent for the average new-build property.

“While we expect that flats, particularly those in city centre locations, are much further from peak than well-located new-build family housing, this still indicates that new-build property reflects much better value than prior to the downturn,” said Lucian Cook of estate agency Savills.

Lower prices have subsequently attracted greater demand from owner-
occupiers. According to data from Savills, owner-
occupiers accounted for 87 per cent of all new home sales in the first half of 2010.

Figures from Knight Frank show a similar trend in London. At the peak of the market in 2007, investors bought 72 per cent of all new-build properties sold by the agent. By contrast, in 2009, 71 per cent of its new-build sales in London were to owner-occupiers, compared with just 29 per cent to investors.

“The number of first-time buyers buying new-build properties around London has increased since 2007 as softer prices made it easier to get on to the property
ladder,” explained Conrad Mazen, head of new homes at Chesterton Humberts.

The dominance of owner- occupiers has also helped to improve the sector’s reputation. “For many, that means less transient neighbours and a much greater prospect of buying into a community, without the risk of buying into a rental ghetto – thus boosting the appeal to owner-occupiers,” said Cook.

At the same time, developers have been focusing on larger apartments and a higher quality finish. “Arguably, the reputation of new-build has probably improved – ironically because of its absence,” said Liam Bailey of Knight Frank. “With many fewer units being built, the schemes that are being brought forward are the more successful units.”

However, the availability of mortgage finance for new-builds is still restricted.

“While the rest of the mortgage market has eased slightly, with lenders starting to offer more choice at higher loan-to-values, the same is not true of the new-build market,” said Melanie Bien of Private Finance.

Borrowers are typically required to put down a deposit of between 20 and 30 per cent. According to David Hollingworth of London & Country, Santander is the best lender for first-time buyers looking to buy a new-build property: in February it increased its maximum loan-to-value to 90 per cent for new-build houses and 80 per cent for flats.

Even first-time buyers without significant cash deposits can still be better off in the new homes sector than in the second-hand market. Housebuilders are increasingly offering incentives to help deposit-poor, first-time buyers become owner-occupiers. This week, Barratt Homes, the housebuilder, extended its Head Start scheme to two London developments: Arena in Hayes and Great West Quarter in Brentford.

Head Start allows first-time buyers to purchase a new property with an 80 per cent mortgage and a 5 per cent deposit. Barratt pays the other 15 per cent and buyers have up to 10 years to pay back the interest-free loan.

Bovis Homes now offers a 90 per cent mortgage deal. In June, it joined forces with Woolwich to offer a 90 per cent loan-to-value mortgage on a two-year fixed-rate of 4.99 per cent with a £999 fee.