Is the new-build premium worth it?

New-build homes are selling for a premium of more than £65,000 compared with existing housing stock.

The average UK new home sold for £290,176, compared with a typical sales price of £224,729 for older properties, according to the latest figures from the Land Registry.

The premium buyers pay for a new build home has increased by £5,000 during the past year.

Historically, the price of new build and existing properties has been much closer, with buyers more likely to pay a premium for a home that is being resold.

Why is this happening?

A number of different factors are likely to be behind the strong price growth for new-build homes in recent years.

On the one hand, the higher price of new builds is likely to reflect the fact that housebuilding activity is currently concentrated in southern regions, particularly London, where property values are higher.

In fact, figures from the NHBC show that in the three months to the end of June 6,000 properties were built in London and 6,584 in the south east, compared with just 1,226 in the north east and 1,954 in Yorkshire and Humberside.

Some of the premium can also be accounted for by developers targeting the high-end of the market and building luxury homes in some locations.

But there are suggestions that the Government’s Help to Buy equity loan scheme is responsible for driving prices up in the new build sector, as the initiative only applies to new build properties.

Some studies claim the popularity of Help to Buy has created a mismatch between supply and demand, driving up the cost of new builds.

What advantages do new-build homes offer?

Potential buyers will have to think carefully about whether or not paying the new-build premium is worth it for them.

For first-time buyers who want to take advantage of the Help to Buy equity loan scheme the lure of a five-year interest-free loan worth up to 20% of their home’s value may well make it worthwhile.

This is particularly true if it enables them to purchase a bigger property, meaning they will need to make fewer moves up the housing ladder.

New-build homes come with other advantages too, as they are typically more energy efficient than older properties, while they require less maintenance and have a 10-year building warranty from the NHBC.

As a result of these factors, they tent to have lower running costs compared with existing housing stock.

Some new builds, particularly apartments, also come with significant amenities, such as gyms, swimming pools and even cinemas.

Finally, new developments may offer property types that are not currently plentiful among the existing housing stock, such as starter homes or detached family properties.

What are the downsides?

Unfortunately, new build properties do have some downsides as well.

While in theory no decorating should be required, in practice many homeowners have to go through the process of snagging with the developer, to sort out issues that may have been overlooked.

New build properties are also more likely to be leasehold than existing ones, which, particularly in the case of houses, tend to be freehold.

It is worth noting, however, that the Government is currently consulting on whether the majority of new-build houses should be sold as freehold.

Finally, new build properties are often smaller than their older counterparts as developers try to fit more units on to a site.