A Guide to Investing in New Builds and Conversions
If you’re considering investing in new build or conversion properties, it’s important to note that the lending process for these types of properties can be more complex than for existing properties. However, this doesn’t mean that investing in new builds or conversions is a bad idea, as these types of properties can offer a range of benefits for investors. To ensure a successful lending process, it’s important to work with a lender who is willing to lend on these types of properties and has experience in doing so.
New Build Investment
New build properties are becoming increasingly popular in the UK as new developments continue to emerge. However, you may encounter some unique challenges when investing in this type of property that you wouldn’t typically encounter when investing in an existing property.
One of the main differences you may find in lending criteria for a new build property is that lenders will require a New Build Warranty. This covers the cost of structural repairs to the property’s foundation, walls, roof, and other key structural components. This will typically be purchased by the developer of the property and provides coverage for both the borrower and the lender in the event of any defects arising within the property. It’s important to note that a New Build Warranty is different from typical home insurance, which covers damage from floods, fires, thefts, and other similar incidents. To secure a loan on a new build property, you will typically need both a New Build Warranty and home insurance in place.
Some other differences in criteria of new build homes and existing homes are:
Deposit– The lender will typically require a higher deposit on new build properties, due to the higher value and the risks that come with lending on them. This is so lenders can mitigate their risks and ensure they are protected.
Documents– To ensure the quality of the construction on the property, the lender will request additional documentation. This may include drawings, plans and other information about development. By reviewing these materials, lenders can verify that the property has been constructed to a high standard and is likely to hold its value over time.
Building Regulations– Lenders may require evidence that the property or development has been constructed in line with local building regulations for compliance purposes.
Valuation– A valuation is a standard requirement for most lending. However, on a new build property that may still be under construction at the time of valuation, the surveyor may rely on plans and drawings for their valuation rather than a physical inspection on the property.
Lenders will often have specific products for new build properties, with things like lower interest rates and extended re-payment terms.
New Build FAQs
A New Build Warranty is necessary to ensure that the buyer of the property is protected in the event that any issues or defects arise in the property, the warranty ensures that the builder is accountable for this if these things were to arise during the specified period after the property is built. The buyer will also have peace of mind when having a warranty in place, knowing they are protected from such defects and issues.
There are risks involved in every property purchase, but with new builds there are several factors that would not apply when purchasing existing properties such as, construction delays, limited room for negotiation, warranty period limitations and changes in market conditions. To minimise the risks involved, it is important to research the builder/developer that you are planning to purchase from, and thoroughly reviewing all documents and agreements to avoid facing further issues.
New build properties are usually equipped with brand new, energy efficient amenities which can make the property more attractive to tenants and future buyers. This also means that there will generally be less maintenance involved, as systems such as plumbing and electricity are brand new, meaning you are less likely to be faced with issues for the short term. The property is also likely to stay in good condition for a longer time, so new builds are a great long-term investment.
Conversion Investment
When financing a converted property, lenders will often take additional considerations into account due to the unique nature if these properties. For example, a converted property may have been transformed from a commercial space, such as a restaurant, into a residential home. Because of this unique nature, lenders will often carefully evaluate the property to ensure it is suitable for lending and is not going to pose a risk to them.
Lenders typically require additional underwriting when providing finance on a conversion property to ensure that the conversion has been completed in compliance with building regulations. Because conversions can be unique and may involve significant changes to an existing property, lenders may need to thoroughly review any drawings, plans and any additional documentation related to the work that has been completed. Although most conversions are completed on existing properties, lenders will view them in the same way as a new build property in terms of criteria. As a result, the number of lenders available for this type of investment may be limited.
While lenders require a New Build Warranty for new build properties, it may not be as cost effective for conversions. The additional complexities and potential defects associated with conversion properties may result in a New Build Warranty costing a lot more. Furthermore, if the work carried out does not comply with local building regulations, it may make the property ineligible for a New Build Warranty. Instead, a more cost-effective option would be a Professional Consultant Certificate (PCC). A PCC is a type of insurance policy that provides coverage for developers, borrowers and lenders against any defects on the property. Obtaining a PCC is typically quicker and more affordable than obtaining a New Build Warranty.
On the other hand, a retrospective PCC (RPCC) may need to be obtained after the conversion work has been completed. This will provide the same coverage as a PCC, but it useful if the owner did not obtain a PCC at the time the work was completed and would like to sell the property as people often struggle to locate the original architect later down the line.
Conversion FAQs
Conversion properties often have a uniqueness to them, as they are often converted from buildings such as public houses, churches and schools. Buyers and renters may be attracted to these properties due to their unique nature. Conversion properties can also result in good value appreciation over time, if the conversion is well executed.
We have several lenders who we commonly use who will allow PCC’s (including retrospective). We have conducted research on this to ensure that when a client comes to us with a conversion property, we have a list of potential lenders on hand to approach with their case and make the process easier.
If you are unable to contact or locate the original architect from a conversion, you may be able to reach out to another architect in the local area of the property. They will then assess the property retrospectively and issue the PCC based on this assessment.