The hidden cost of buying a new-build

New house buildsThe Government wants more homebuyers to buy new build properties. But they could end up in unsuitable, unsustainable homes as a result.

The Government wants to help first-time buyers onto the property ladder. That's apparently why it's launched schemes like FirstBuy, where Government and home builders provide an equity loan of as much as 20% of the value.

New buyers stump up a 5% deposit but can then qualify for a 75% mortgage, which will have a better rate. There's also the recent NewBuy scheme.

I think this is a way of supporting house builders, not new buyers and certainly not the property market more generally. New build homes cost a lot more than simply the mortgage, and I should know – I'm trying to live in one.

Here's why I don't believe the Government should be urging new buyers into new builds.

My Wendy house
My husband and I bought our first home just before property prices plummeted.

But if the house was a bit more live-in-able, that wouldn't be a problem because we wouldn't need to move. It's a three-bedroomed home on an acceptable estate near the town centre; it should meet all our needs for some time.

Unfortunately, it's tiny. Absolutely miniscule, a play house. The rooms aren't really big enough for proper-sized tables, chairs and beds – a fact that was cunningly concealed when we visited the show home through the use of three-quarter-scale furniture.

Try to add wardrobes into that mix and you're stuck clambering over chairs to get out of the room. When I was pregnant, I couldn't reach the far side of the bedroom without climbing over the bed. It's a good thing heavily pregnant women are so lithe and graceful...

And this is not a problem with our specific builder or area, it's a national disgrace. A survey by the Royal Institute of British Architects found that the average new home in England is only 92% of the recommended minimum size. The recommended minimum. Most of us would probably prefer a bit more elbow room than the absolute minimum.

We're struggling to fit in this house and I know that the 10,000 new buyers the Government hopes will take up the FirstBuy scheme will end up in the same boat. Not only that, they will have lost money compared to buying an existing home.

The new home premium
When you buy a brand-new home, you'll usually pay a premium for the privilege of living somewhere that no-one else has. It's very pleasant to move into a property where everything is brand new, but it can be expensive.

It's hard to say exactly how much a home is devalued when it's no longer new and perhaps some don't lose value. The Royal Institution of Chartered Surveyors, says: "Approaches to the assessment of any new-build premium vary, and there is certainly no defined percentage of the selling price that can be ascribed with any confidence."

But for some properties it's as high as 10% of the home's value, instantly trapping some new owners in negative equity. If new buyers were purchasing existing homes, they wouldn't be running that risk at all.

The lack of cupboard space
From lofty financial concerns to simple pragmatics. New build starter homes like ours often have very limited cupboard space as the kitchens aren't exactly large.

That means that new buyers will struggle to fit in all their pots, pans, tins, dried food, cartons and so on – a problem that gets far worse if a baby arrives with its mountains of equipment.

Because of this, these homeowners will have to buy smaller packets of everything, from loo roll to dried pasta. That makes everything more expensive.

Throwing away things you could reuse
Another way that the lack of storage space hurts is that homeowners can't hang onto stuff. We've found ourselves selling or Freecycling kit that we know we might one day use again, from a hamster cage to a bicycle.

But because there isn't enough space to actually live in, let alone keep anything that isn't regularly used, we've had to get rid. It's necessary but it's a complete waste of cash.

Limited space to socialise
Did I mention that most newly-built starter homes are too small? The other issue with the lack of space is the lack of space to socialise.

New buyers snapping up a tiny house through the FirstBuy scheme may soon find that they can't fit more than four friends in the sole reception room of the property (without resorting to some sort of double-stacking situation that even IKEA hasn't yet managed).

That means that when they want to gather with friends, they'll have to do so somewhere else, most likely in a pub, club or restaurant, where it will cost much more.

Although this might sound like a relatively minor and even whingy complaint when some people don't even have roofs, think about how often you see your friends. If it always had to be outside of the home, it would cost you a lot more. New buyers shouldn't have to just suck that up.

No room to grow
New homes don't just have small rooms, they often have the smallest garden the builder can get away with (and don't get me started on the 'soil').

That means that buyers will struggle to grow their living space later on, for example, by adding a conservatory. If homeowners couldn't sell their property because the market was still sluggish, they'd have far fewer options for expanding it.

Expensive extras
When the builder is selling a new property, it will probably make a big deal about how the buyer can choose the décor and add as many extras as they like. But those extras cost extra – and by extras I mean things like carpets, proper garden fences and even grass.

Most new buyers will be flat broke when they buy their first homes and won't be in a position to pay for these things. That means they will have to buy them later on, which wouldn't necessarily be the case with an existing home.

Real help for first-time buyers
It seems that what the Government wants to do is support new buyers and the home-building industry. And that's laudable; there is a housing shortage in the UK and so it makes sense to encourage the creation of new homes.

But that's not exactly going to get the property market moving further along, as new homes will soak up all the prospective buyers. Would-be second steppers like us will be unlikely to benefit for a good many years, so it's hardly going to get the property market moving again.

However, would-be buyers don't have many options in this tough market and so will end up in newly-constructed homes through FirstBuy, whether they want a new build or not.

Clearly the Government is in a bind; it wants to support new buyers but needs the home builder industry to assist in the equity loan. However, it must be possible to support new buyers in other ways so that they have greater choice. Leaving the Stamp Duty exemption in place would have been a start.

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Of course with all these things, the value it adds depends on the property you have to start with, and the kinds of improvements you make, but Which? estimates the cost of a new kitchen at £8,000 and HSBC calculates the added value to your property at £4,500 - which is a clear loss.

This has been done by 41% of people in the last three years, and 29% of people plan it in the next three. It's cheaper than a kitchen, and Which? estimates the cost at £3,000. This is roughly the same value that HSBC says it will add to your property - so you'll break-even.

This has been installed by 31% of us in the last three years, and 15% plan it in the next three. Installing central heating is a disruptive job, and according to WhatPrice it will cost you around £3,235. However, this is the first of the top ten to actually pay off. Property expert Phil Spencer says it will add £5,000 to the value.

Some 18% have added one in the last three years, and 30% will in the next three. This is another huge job, but with more people struggling to move and deciding to improve instead, it's increasingly popular. The amount it costs will depend on an enormous number of things, from the area you have to work with, to the size of the extension. However, assuming you add a single room you could spend around £20,000. HSBC estimates it will add around £15,500 to the value of the property, so you are unlikely to gain as much as you spend.

17% have done one of these in the last three years, and 20% will in the next three. This doesn't have to cost more than a couple of hundred pounds, but according to a survey from Halifax a few years ago it costs an average of £850 and adds almost £1,500 to the value. This is the second financial sound project in the list.

11% of us have knocked rooms through in the last three years and 8% will in the next three. If you're creating more usable space, then buyers won't mind you are reducing the number of rooms. If it's a supporting wall you can end up spending around £1,500, whereas a non-load-bearing wall should be doable in a day with a laborour and a plasterer for a couple of hundred pounds. It's unlikely to specifically add value though.

8% have put them in over the last three years, and 8% plan to in the next three. A solar panel costs about £6,500. It's definitely not going to add value to your property. However, it can pay off. With a feed-in-tariff you can save yourself £600 a year in heating, and can sell up to £450 back to the grid. The lifespan of the panel should be 20 years, so you'll break even after six and a half years and start making money. It's the third wise financial move here.

6% have done this in the last three years and 11% plan to in the next three. According to HSBC it adds the most value - at an average of £16,000. However, at a cost of £20,000 or more, it won't make you money.

4% of people have added one in the last three years and 7% plan to in the next three. As with a similar extension, you're likely to spend £20,000 and add £15,000 of value. So it only makes sense if your family is too big for the house.

2% have converted the cellar in the last three years, and 4% plan to in the next three. This is not a great way to see a return on your money - unless you live in the kind of area where you are absolutely out of any other options when it comes to making more space. It's not cheap - starting at £10,000 for simple waterproofing and finishing, to £50,000 for more intensive work. It will typically add £20,000 to the property.


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They have the power to push a price higher, depending on how many other people are in the running for a home and how liberal they want to be with the truth to the buyers. In some cases, they can also do more harm than good by initially overvaluing a property. The worst case scenario is the home eventually sells for less than it would have done had it been priced realistically in the first place.

Sometimes a quick-moving solicitor can be the difference between getting the home at the price you want and getting into a bidding war or missing out entirely. If the buyer needs a quick sale, they're more likely to do a deal with someone who has a flexible solicitor who can push through the sale so it suits them.

Research by Halifax concluded that anti-social neighbours could take £31,000 off the price of an average home. If you’re selling, you should declare any problems you’ve had on a Seller’s Property Information Form, otherwise you could face a claim later on.

While an increase in Council Tax might not be too much of a deterrent to a potential buyer, plans to grant permission for new homes, a mobile phone mast or wind turbines could knock an asking price down. If you're a buyer, the local council should have details of any future planning applications and you can search them for a small fee.

A lot of traffic in an area obviously has an effect on air quality. Since 1997 each local authority in the UK has carried out studies of the air quality in its area. If an area falls below a national benchmark for air quality, it has to be declared an Air Quality Management Area (AQMA). Some residents of the Llandaff area of Cardiff expressed concern that it had become an AQMA due to an increase in traffic in the area. Whether this becomes a widespread issue remains to be seen.

Mortgage availability is a key driver of property prices. If no-one can take out a mortgage, then prices will stall and eventually fall. We've seen this happen in parts of the UK in recent years, as lenders tightened up their criteria following the credit crunch. Conversely, good mortgage availability will mean more people are competing for properties - to a seller's advantage if their home is desirable.

An outstanding local school can add around 8% to the value of a home, according to the Royal Institution of Chartered Surveyors. On the flipside, a not so good Ofsted report can take off a similar amount. If you’re concerned about a school’s performance, one way to get involved is to become a governor.

Initiatives such as the Help To Buy scheme have been credited with pushing house prices up. A buoyant economy with strong employment gives people the confidence to buy and leads to an upward shift in house prices, while rises in unemployment have the reverse effect. Planning restrictions, at both a national and local government level, affect the number of homes in a particular area.

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