It’s a fact that there is a dire shortage of rental homes in today’s property market. Perhaps you’ve considered becoming a landlord and you’re unsure of the best property you ought to invest in to get started. You might be wondering will a new-build make a good buy-to-let investment? We take a look at the key points of consideration as well as the pros and the cons of a new build as a rental property. Find out more…
Mortgages are tricky
The first hurdle to jump, especially if you are new to renting and a first-time landlord, is securing a mortgage. And in today’s market, this might be even more challenging. When it comes to new-build homes, the mortgage process is tricky. The main reason for this is the risk attached to new builds – there is a strong chance that new properties lose value once built and someone moves in. And because of this, the interest rates are usually higher on new build mortgages.
But it’s vital you have the right mortgage in place to help you achieve your property investment goals. It might well pay to get a broker in your corner to support you, one who is experienced in dealing with new build mortgages. At the end of the day, it is important that any mortgage you do get, you’re able to afford your mortgage payments comfortably.
A bigger deposit is needed
Due to the risk attached to new build homes, lenders are more likely to ask for a larger deposit. On older properties, deposits are typically around the 20-25% mark. With new build homes you can expect something more like 35%. That’s a significant amount of initial outlay, especially when you consider costs of new builds are significantly higher than older properties.
And as well as the deposit, you need to make sure you consider any stamp duty and legal fee costs. Understanding all your initial costs is vital to be able to calculate your rental yields correctly.
Yields and investment
When looking at a buy-to-let property, you need to decide on yields and investment.
First of all, ask yourself what you want from your investment. Why have you decided to rent out a property? For example, if you are looking for long-term investment for capital growth then a new-build property makes sense. Short-term gains might be more difficult with a new build home, especially with the higher mortgage costs and initial costly outlay.
You ought to also calculate your rental yield, which you do by taking the annual rental income of your property and divide it by its value. The higher the rental yield, the better return on investment you can expect. In today’s market, rental yields of between 5% – 8% are considered good, and profitable.
It’s important to bear in mind that rental yields vary by location. So, before choosing any property, research the areas you are looking to buy in. What are the property prices there? What are the average rents there? This will give you a good starting base for calculating your rental yield.
Energy efficiency covered
The government recently scrapped the forthcoming changes to the EPC requirements for landlords. These would have meant that from 2025, a rented property would need to have a certification rating of C or above. Whichever way the government goes with this in the future, there are two things for sure. The first is that the majority of new build houses and flats (around 85%) have an Energy Performance Certificate rating of A or B. And the second is that people renting properties would much rather prefer to rent a home with a higher A or B Energy Performance Certificate rating as this would mean more affordable energy costs.
Benefits to tenants
The numerous benefits new build homes offer make them attractive to tenants. And with this in mind you are more likely to be able to charge a higher level of rent compared to an older property.
Just some of what tenants like about renting a new build home include the modern décor and immaculate interiors. The cleanliness, newness, and overall modern design of new build homes makes them attractive to couples and families looking for a home to rent.
And of course, the energy efficiency of new build homes, is quite possibly one of the biggest attractions. As well as tenants being able to take advantage of lower energy bills, they can rest assured there won’t be the draughts or poor levels of insulation which are often found in older rental properties.
Low maintenance costs
If you were to buy a new build property as a buy-to-let investment, you should expect almost minimal maintenance costs in the first few years. With everything being brand new, you can rest assured maintenance won’t be a costly burden for a significant period of time. Compare this to an older property which is more likely to require lots of maintenance and upkeep from the start.
Plus, when you buy a new build property, it will come with a 10-year NHBC warranty. This includes a 2-year builder warranty period too.
Experience pays
If you are already a landlord and have a strong working portfolio, this might put you in a stronger position when it comes to taking on a new build as a buy-to-let investment. However, there is huge demand for new landlords and new rental properties across the country, so don’t be put off by lack of experience.
We recommend taking a look at the costs involved when it comes to buying a new build versus the costs of upkeep for an older property. Initial costs for a new build may seem expensive, but how do these compare to maintaining an older property?
Then do your research, make realistic rental yield calculations and get a good broker in your corner who specialises in buy-to-let to help you find the best mortgage deals available.
If you are interested in buying a new build home as a buy-to-let investment, then start searching for properties with us. Whether it’s a flat, small property or larger family home, we list the new build properties from housebuilders large and small across the country. Start your search here.
