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Is the property investment pendulum swinging towards new builds?

September 18, 2022

When financial advisers and lending specialists note that landlords are increasingly looking to purchase new build homes, it’s a good indication that trends are shifting in the buy-to-let market. 

Traditionally, brand new homes have been pushed down the desirability list for a number of reasons. Leasehold status, ground rent and the ‘new build premium’ that prevents adding value are among the aspects that have worked against this property class but incoming regulations have shifted the focus of investors.

The spotlight falls on sustainability

The quest for more sustainable housing stock is pervasive, with the private rental sector earmarked as one of the leading catalysts in reducing energy consumption and carbon emissions in residential settings. 

Landlords should already be preparing for a tightening of EPC standards. While current rentals are required by law to have a minimum EPC rating of E, this is changing. By the end of 2025, new and renewing tenancies will require an EPC of C to be compliant – a regulation that will apply to all tenancies by the end of 2028.

In the past, landlords would have been happy to purchase on older property stock and make improvements – perhaps adding value along the way. Today, however, there is a perfect storm of factors casting a cloud over investing in resale buy-to-lets. 

The requirement to meet rising energy standards comes at a time when the cost of materials is high and the availability of skilled contractors is constricted. Rated People’s Home Improvement Trends Report 2022 casts light on the situation. 

Beat the struggle to find skilled trades

In 2021, 45% of homeowners surveyed said they struggled to find available tradespeople to take on a job, with demand set to increase this year. In addition, 91% of tradespeople expect their costs to increase in 2022, with 44% of trades expected to delay or cancel work in 2022 because of a shortage of materials.

Compounding the matter, especially for landlords who are considering swapping a gas boiler for a heat pump – is a huge skills gap. A 2022 report by Nesta found there are presently just 3,000 trained heat pump engineers in the UK, but at least 27,000 will be needed in the next six years. This is of particular pertinence with a ban on all new gas boiler sales and installations in 2035.

Attract energy conscious tenants

Purchasing a new build for buy-to-let purposes is a solution to increasing energy efficiency problems, especially when you consider 84% of new builds were given an A or B EPC rating between October and December 2021*. As well as presenting landlords with a future-proof EPC, energy efficient new homes will attract tenants who are increasingly mindful of fuel bills, cautious about running costs and seeking properties with electric vehicle charging points as standard.

Start with high standards from day one

The Fairer Rented Sector White Paper will usher in new living standards, with the introduction of a Decent Homes Standard for the private rental sector. The forecast is for the condition and age of currently unregulated aspects, such as kitchen cabinets and bathrooms, to be called into question.  

A new build home delivers ‘all new’ everything for a compliance-ready investment, allowing living standards and tenant welfare to be achieved – and maintained – with little to no financial investment or effort from landlords. New build warranties also give landlords extra reassurance, with the structure usually covered for 10 years by a provider, such as the NHBC.

Ground rents banned on new builds

Finally – and to a landlord’s advantage – is the ban on ground rents on new build properties. Ground rent is one of the expenses landlords can’t pass on to tenants but as of June 2022, all newly built homes are free of ground rent. The new ruling does not apply to existing leasehold properties so the benefit lies exclusively in the new build sector.

Our lettings team is on hand to help you navigate the forthcoming changes in the private rental sector and weigh up the new build premium versus the compliance advantages. Contact us for investment and purchasing advice.

*statistics from the Department for Levelling Up, Housing & Communities

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