Why new build houses are more expensive than old houses

Posted 06th April 2022 by ctatax-admin

There are a number of reasons which could be contributing to prices for new builds rising faster than for older homes…

Read the full article on The Independent

For a start, there is without a doubt a lot more demand for starter homes and smaller homes. This is due to generally lower incomes for younger buyers and the difficulty of getting deposits, meaning that smaller (i.e. cheaper) homes become much more attractive to them.

Coupled with the increase in property investment and the boom of the rental sector in the last two decades, this makes for a very competitive market. Thanks to current building regulations, properties in this bracket tend to be more energy efficient in the new build sector and so may be attracting a premium.

We’ve reclaimed over £15 million in the last 12 months on overpaid Stamp Duty Land Tax. Find out if you are eligible for a Stamp Duty Refund from HMRC

Secondly, most mortgage lenders prefer to lend on new build stock because it comes with NHBC guarantees. There have been instances of first-time buyers being turned down for mortgages on second-hand older homes but then accepted for a more expensive new build one. It’s likely that this is because mortgage lenders regard these newer properties as lower risk, partly thanks to the aforementioned NHBC certificate.

Thirdly, recent years have seen a massive increase in construction costs, both in terms of material and labour, and it may be that prices for new builds are being marked higher simply because the developers need to sell at higher prices in order to remain profitable.

Finally, there remains a consistent excess of demand over supply in the smaller homes area and again this is tending to push prices upwards.

However, whereas new builds may be more expensive than equivalently sized older properties, they do come with advantages which may work to mitigate this price difference over time.

A newer, more energy efficient home will benefit from lower utility bills and won’t require the homeowner or new purchaser to spend thousands of pounds on upgrading energy efficiency to modern standards – if indeed this is possible.

A guide to Mixed-use developments and when you can save thousands on Stamp Duty

This makes an energy efficient home intrinsically more attractive to purchasers over older, less efficient ones, especially in this era of rising energy costs.

Above the median price level i.e. larger homes there is a relatively small supply of energy-efficient properties and, as a consequence, there tends to be a lower differential between new vs secondhand in this part of the market.

Buyers of these homes will also tend to rely less on mortgage finance and buy more on lifestyle choices. As a result, character and period homes – often extremely energy inefficient and incapable of being improved owing to planning restrictions or listed status – remain attractive to the type of purchaser who can afford them.  With a higher disposable income, this type of buyer will be less impacted by increasing energy bills.

Of course, larger properties actually have not only the potential to improve energy efficiency but also often the land and/or roof area to benefit the most from the installation of green initiatives such as solar panels, ground source heating and air source heating. This must of course be balanced against these properties being larger and therefore having a much higher cost to retrofit with insulation, triple glazing, and other energy efficiency measures.

Ultimately, newer properties will always present the most efficient long-term investment for both residential and investment purchasers, whereas older properties may present a false economy once the cost of running them is taken into account.

We’ve reclaimed over £15 million in the last 12 months on overpaid Stamp Duty Land Tax. Find out if you are eligible for a Stamp Duty Refund from HMRC