New Builds -> Valuations

Morn

Hi guys,

I am looking at a house at £285k @ 85%LTV where the builder is flatly refusing to drop the cost even by a penny. I have negotiated some extras (2/3 stamp duty contribution and some fittings), but I am struggling to gauge how much new builds devalue so am not sure if I am screwing myself.

I appreciate there are no hard and fast rules on this, but I would be interested to get some advice/examples.

Any help appreciated.

Cheers

marathonic

85% LTV where the builder is providing funds for the stamp duty may be difficult with regards to a mortgage.

Sorry I can't be of more help regarding the method banks use to value them though!

HARSA

Morn wrote: »

Hi guys,

I am looking at a house at £285k @ 85%LTV where the builder is flatly refusing to drop the cost even by a penny. I have negotiated some extras (2/3 stamp duty contribution and some fittings), but I am struggling to gauge how much new builds devalue so am not sure if I am screwing myself.

I appreciate there are no hard and fast rules on this, but I would be interested to get some advice/examples.

Any help appreciated.

Cheers

what are your plans for this home? are you going to stop over there forever or planning to move on after few years.

I personally think that if you are going to sell anytime <=10 years the most you will get is 250k. More if you made improvements but that will be all relative then!

Can't you just stay away give it about a month and if still hasn't sold go back and ask for more discount?

marathonic

HARSA wrote: »

I personally think that if you are going to sell anytime <=10 years the most you will get is 250k. More if you made improvements but that will be all relative then!

It'd be wrong to put an exact figure on it as house prices in general could go anywhere over the next 10 years.

If would be true, however, to say that you are likely to get a lot less for a £285k new build at any point in the future when compared to what you would get for a £285k house of 10 or more years old purchased today.

Morn

Thanks for the quick responses. The property is off plan at present and the mortgage broker does not see any issue with the stamp deal.

If we take it I would see us being there for a long time 15+ years - as we are not one to chop and change.

What I am really concerned with is the LTV after initial mortgage period. Essentiall I do not want to be treading water for 10 years because the property is over priced by a ridiculous price and be unable to get a better rate deal.

We are luckily able to overpay each month but still it all seems a little bit casino to me whether we will be in a good position in the long run.

God this is stressful.

Morn

marathonic wrote: »

It'd be wrong to put an exact figure on it as house prices in general could go anywhere over the next 10 years.

If would be true, however, to say that you are likely to get a lot less for a £285k new build at any point in the future when compared to what you would get for a £285k house of 10 or more years old purchased today.

I get there is normally a difference in value between the new and old properties, but as the new builds age I assume they potentially appreciate in their resale value??

kingstreet

Builder incentives of upto 5% of the purchase price are routinely accepted by most mortgage lenders without affecting the loan to value. It is where there's a 5% builder's deposit plus stamp duty and other bits on top where the problems start.

The OP needs to speak to their own lender about this.

The risk of buying a newbuild is the loss of the new premium. This is an incalculable amount and it applies for an unquantifiable length of time. If you are concerned that you might need to sell in the first five to seven years, I'd consider your purchase very carefully.

marathonic

Morn wrote: »

I get there is normally a difference in value between the new and old properties, but as the new builds age I assume they potentially appreciate in their resale value??

As an example (and these are just for representing the issue with new builds and may differ significantly):

New Build: £285k, of which £35k is the new build premium
Older House: £285k with no new-build premium

If prices go up at 3% p/a, your new-build house will be worth about £290k after 5 years (as it was originally worth 250k if it were an older house). Therefore, you are correct that they potentially appreciate in their resale value.

However, in the same scenario, the older house will be worth a little over £330k (as it was originally worth the full £285k as an non-new-build).

Some people think that the new build premium dissappears over time as the house price increases.

This can be incorrect and, in fact, the nominal difference in price would increase if the values of the houses increase at an equal rate - as is seen by the £35k difference in the above two houses becoming a £40k difference after 5 years of increases at 3% per annum.

jamesml

At the end of the day it still comes back to the future market, and we are all looking into crystal balls as far as that is concerned. If you are happy to know you are paying a premium for the new build then that's all that matters - you go in with your eyes open.

Personally I was happy to potentially pay more for a new build.


A bit more on topic, incentives generally could impact your valuation and mortgage offer - best be upfront straight off (not that I'm suggesting you wouldn't be). If you are happy with the price then I don't see the issue - it might not be worth it to someone else, but that doesn't mean it isn't worth it to you.


Worst case is the mortgage valuation comes in lower - in which case you have the best bargaining chip in the world - you tell the developer you can't proceed unless they match the valuation. I was secretly hoping the valuation would come in lower on mine!

London_Town

Also, bear in mind, that in 5 or 10 years time a current new build home will be competing with everything else on the local market, as it's "new gloss" will have long gone.

While I can't comment on the property you're considering, the vast majority of new build homes I see, are built on tiny plots with inadequate parking. Therefore, in 10 years time, these homes may struggle to match the price of houses from the 80's or early 90's which have bigger gardens and more parking provision. I've watched this happen on big developments near where I live.

Even worse, alot of new homes are starting to be built as leasehold, so they will attract a monthly or yearly charge for the upkeep of communal landscaping or parking areas. This may not be a problem initially, but longer term it will be, as the freeholder tries to screw more money out of you or simply fails to do any maintenance. This will be a problem that most older houses won't have too.

newbian

marathonic wrote: »

It'd be wrong to put an exact figure on it as house prices in general could go anywhere over the next 10 years.

If would be true, however, to say that you are likely to get a lot less for a £285k new build at any point in the future when compared to what you would get for a £285k house of 10 or more years old purchased today.

I am wondering if this is the case in a big city like London which has a constant stream of new residents requiring housing. And coming from countries where people prefer new to old properties.

I am planning to buy new in London, I've looked at resale prices at 10 year old developments in similar areas and for 2-3 bed properties they are all selling much higher than they were purchased for. There are few analogues to older properties because the older housing stock is mostly houses, not flats. The buyers in the new development would not have purchased the older houses, they'd have bought a flat elsewhere presumably.