Lenders are turning their noses up at new-build deals but in a diverse market they should check their facts and treat each deal according to its merits, says Mark Harris
New-build has become less attractive to lenders. They regard such homes with increasing suspicion and have reduced their exposure to the market accordingly. Yet the new-build sector is far more diverse than the stance of lenders suggests.
Hardly a day goes by without another lender changing its new-build criteria, reducing its maximum LTVs or even pulling out of the market altogether.
At the time of writing, two lenders recently announced significant changes to their policies. Abbey reduced its maximum LTV on new-build buy-to-let deals from 75% to 65% and Capital Home Loans announced it was pulling out of the market.
Other lenders have tinkered with criteria and definitions over the past few months. Some no longer offer mortgages on new-build flats due to fears of oversupply but will still consider houses.
The overwhelming picture is that new-build properties are being regarded with suspicion and there are concerns over how properties are valued.
Some of this reaction is justified but there is a tendency to regard the new-build sector as uniform when in fact it is diverse.
There’s a world of difference between heavily discounted new-build flats located in city centres and highly desirable new-build houses in the smartest areas capable of achieving full market value.
But valuations of these different properties are being regarded as one and the same. The problem isn’t so much the surveyors but the directives they get from lenders. From the their perspective new-build properties should be regarded as second hand and valued accordingly.
But not all new-build homes are being affected in the same way. Not all developments are heavily discounted in order to encourage purchasers. Some cost the full whack and are still oversubscribed by consumers because they are highly desirable.
Treating all new-build the same way has an adverse affect on affordable housing developments such as New-Build HomeBuy, which are in great demand. Nevertheless, surveyors don’t know how to value such properties.
It’s also unhelpful if a developer sells eight mews houses for £950,000 each with no incentives or discounts but the surveyor values them at £750,000 because they believe that gifted deposits exist on all new-build homes, even though three of them have already sold for £950,000.
We have got to the stage where there is suspicion of everything new-build and there are some good reasons why this is the case.
But surveyors need direction. There can’t be a one-size-fits-all policy in what is an extremely diverse market. Lenders need to be sensible.
There needs to be more understanding of the market. Many clients who buy new-build homes are genuine owner-occupiers who could just as well be buying in the traditional market. They shouldn’t be penalised because of problems of oversupply and lack of transparency elsewhere.