Buying a new-build home direct from a housebuilder differs in many ways to buying an older property from an estate agent. One of the key differences is the costs associated with the purchase. It's important to be prepared from the start and know exactly what you need to save for, so you don't get caught out after committing to your purchase.
We take a look at what it really costs if you plan on buying a new-build home, from your mortgage to Stamp Duty, and everything else in between.
First and foremost, your biggest overhead and saving objective will be your deposit. A deposit for a new build is likely to be greater than one for an older property. The reason for this is to protect the mortgage lender. New-build homes lose their value quickly in their early years, so mortgage lenders generally ask for a greater deposit by way of security, usually a minimum of 10%. If you're buying a new-build apartment, you might even need a deposit of 15% to 20%.
You might be tempted to secure a 95% mortgage so you only need a 5% deposit. While this gets you onto the property ladder sooner, you should be aware of the wider long-term financial pressures. With a smaller deposit, you'll generally face higher interest rates, higher monthly repayments and fewer lenders to choose from because the lender is taking on greater risk.
A larger deposit of 10% to 15% can help you access better mortgage deals and lower interest rates. Think carefully about the deposit you're prepared to save for, as it could make the difference between living comfortably and facing financial pressure in your new home.
If you're buying a new-build home and want to commit to a property you've seen on a development, you'll usually be asked to pay a reservation fee. This secures the property while you arrange your mortgage and instruct your solicitor.
The fee normally reserves the property for a limited time while you work towards exchanging contracts. Typical reservation fees range from £500 to £2,000, depending on the developer and property type.
The reservation fee is not legally binding and you can withdraw before exchanging contracts. However, you may lose some or all of the fee depending on the developer's terms. If you complete the purchase, the reservation fee is usually deducted from the final purchase price, although you should always confirm this with your housebuilder.
Despite the many changes in recent years, Stamp Duty is still payable on property purchases in England. The current structure is such that, if you're a first-time buyer, you will not pay any Stamp Duty on a property costing less than £300,001. For the portion above this amount, first-time buyers pay a 5% relief rate. There is no relief for first-time buyers purchasing properties over £500,000.
If you're not a first-time buyer, you will pay the standard rate of Stamp Duty regardless of the property price.
Whether you use a broker or not, you will need to pay fees for arranging your mortgage. Mortgage arrangement fees vary significantly by lender. Mortgages with the lowest interest rates may charge between £999 and £1,999, while some higher-interest products, such as 95% mortgages, may have no arrangement fee.
Don't automatically choose a no-fee mortgage. Consider the overall cost of borrowing over the life of the mortgage, as a lower interest rate with a fee may save you more money overall.
Many buyers choose to use a mortgage broker to find the best deal. Some brokers are paid commission by lenders, while others charge a flat fee of around £300 to £500. Given the complexity of new-build purchases, using a broker can often be worthwhile.
Buying a new-build property generally involves higher legal and conveyancing costs because there are additional checks to complete. These include reviewing the developer's contracts, planning conditions, building warranties and any clauses specific to the development.
You should expect legal costs to be in the region of £1,500 to £3,000.
Unlike buying an older property, you won't usually need a full structural survey because your new home should come with a 10-year structural warranty.
However, it is recommended that you arrange a professional snagging survey before moving in. A snagging survey identifies defects, imperfections and unfinished work within the property. Although you can complete one yourself, a professional surveyor is more likely to spot issues and report them in line with current building regulations.
A professional snagging survey typically costs between £360 and £500, although larger homes and properties in London and the South East may cost more.
Remember to budget for moving costs. Whether you hire a professional removals company or rent a van yourself, expenses such as storage, cleaning and packing materials can soon add up.
For many households, moving costs can easily reach around £500, while larger family moves are likely to cost more.
One of the biggest differences with a new-build home is that it is a completely blank canvas. Especially if you're a first-time buyer, you'll need to budget for furnishing and finishing your home.
Most new-build homes include:
Flooring is something many buyers overlook. Carpets and hard flooring are rarely included as standard. Although developers often offer flooring packages, these can be more expensive than arranging flooring yourself.
Don't forget the garden either. Many new-build gardens are handed over with little more than soil, fencing and a basic path. Turf, patios, sheds, planting and landscaping will all need to be budgeted for separately.
Once you understand what it really costs to buy a new-build home, you can budget more effectively and begin your search with confidence.
Many developers offer incentives such as upgrades, deposit assistance or help towards Stamp Duty, making it worth exploring all available options before making your purchase. Start your
search for your new home here.
