Should Property Investors Be Buying New-Build or Existing Properties?
Should property investors looking for a better return on their investment be purchasing new-build homes or existing properties?
New research has revealed that if investors wanted to make more of a profit on their property purchase in the past year (March 2021-March 2022), they should have invested in a new-build property.
The new study prepared using average price data from the UK House Price Index found that the annual price growth of British new-build properties outperformed existing properties by 19 per cent year-on-year. Here are the figures:
- The average price of an existing home in Britain in March 2022 was £272,851; this was up 8 per cent on the same period in 2021
- At the same time, the average price of a new-build property rose from £330,662 to £422,414, marking an annual growth of 28 per cent, meaning that new-builds in Britain outperformed existing homes by 19 per cent
The researchers next looked at where in Britain new-builds offer the best returns when compared to existing properties. Their research revealed that:
On a regional level:
- New-builds performed most strongly against existing properties in Wales. The average new-build in Wales saw its value increase by 34 per cent from March 2021-22, rising from £246,740 to £331,159. This growth was 23 per cent higher than that of existing properties in the region which, in the same period, saw their value increase from £181,199 to £201,633, marking growth of 100 per cent
- Scotland’s new-build properties enjoyed growth of 29 per cent compared to existing properties (+7%) – a difference of 22 per cent – while in the East Midlands, South West, and North East, new-build growth outperformed existing homes by 21 per cent
- In the East of England, South East, Yorkshire & Humber, and West Midlands, new-build price-performance was 20 per cent better than existing properties; in the North West the price growth gap was 19 per cent while in London, new-builds saw 15 per cent higher growth than existing stock
On a local authority level:
- New build properties in Merthyr Tydfil, Wales outperformed older properties by 18 per cent
- Scotland’s Western Isles also saw a property price growth margin of 18 per cent
- In East Ayrshire, East Lothian and Glasgow new-build performance was 17 per cent higher than existing properties
- Richmond ranked top in London, where new-build property prices outperformed existing by 14 per cent, while in Bexley the difference was 12 per cent, Camden (12%), Hackney (12%) and Tower Hamlets (12%) also ranked amongst the highest in the Capital.
The changes to energy performance requirements that are on the way are serious and must not be taken lightly, yet they are essential. A large portion of the BTL market is older housing stock, with poor energy performance, which will need to improve by 2025. Despite the fact that the measures will only apply to new tenancies, landlords must not ignore the implications to existing tenants, especially now.
It can cost double to heat a badly insulated home and with energy costs spiralling out of control, energy performance will be top priority for all tenants from now on. As we approach 2025 and the new rules are given increasing exposure, existing tenants will not be happy to be paying much more, just to keep warm.
New properties are far more viable for rental, with minimal maintenance costs and far better energy performance, attracting a premium from tenants. For investors looking to buy in the immediate future, they will find that there is already a bias towards less energy efficient properties, with many BTL lenders refusing to offer mortgages on properties with an EPC rating that is below an E and increasing difficulty with properties with an EPC rating that is below a C, in anticipation of the predicted changes.
There is already evidence that tenant’s top priority is now energy performance, as the energy crisis bites, this will only even more important.