Lenders shy away from new build buy-to-let

Inside Track, Britain's largest property investment company is to abandon it's workshops for new investors.

Stephen Ludlow is not surprised by the difficulties of the Inside Track has encountered. Back in May 2007, ludlowthompson pointed out that figures from the Financial Services Authority (FSA) showed that 45% of repossessions are of new build flats supporting the fact that “second hand” flats rather than new build flats are a safer investment.

Stephen Ludlow, Director of ludlowthompson.com comments: “This seems to confirm what we have been arguing for some time. The total returns achieved from investing in brand new buy-to-let flats are inferior to those achieved from “second hand” stock such as Victorian conversions.”

Melanie Bien of Savills Private Finance says: "Some lenders are refusing to lend against certain developments and there is a lot of concern in the marketplace about discounts offered on new builds."

Ray Boulger of John Charcol says: "It comes as no real surprise that there are cuts at Inside Track. Lenders are tightening criteria at a rapid pace."

Older flats outperform new buy-to-let by nearly 400%

Stephen Ludlow explains that over the past five years the average price of older flats has soared in value by 59% whilst the average price of new buy-to-let build flats rose by just 15%.

Stephen Ludlow points out the other disadvantages of new build buy-to-let: “When people buy new build flats, they pay a premium for all the new fittings, fixtures and white goods that come with the flat and they have to pay the developer’s profit.  So although a new flat comes ready to let, this does come at a high price.”

Buy-to-let investors often find that when a guaranteed rent period ends that the actual market rent they receive may turn out to be lower than during the guarantee period.

Not withstanding the 'advertised' discounts often offered on new build buy-to-let flats, surveyors are now being very cautious about valuations with the concern that lenders may later query them should prices fall. 

According to ludlowthompson.com older properties are increasing in value faster than new build buy-to-let flats because buyers are attracted by features which are becoming increasingly scarce in new properties:

• The design features of period properties add value as they often date better than properties built to a contemporary style. These features will not be undermined in value by an increase in supply of commoditised modern properties.
• Lofts and basements are increasingly rare in new properties and can enhance potential capital values by offering the option of an extension to the property.
• Gardens are often at the top of the agenda for house and flat buyers with children.
• Built in storage space has become scarce in the average new build property as land prices have accelerated and newly built properties have become smaller.