Buying a new build flat? 10 risks to check first

1. Don't treat the first-year service charge as a fixed price

Ask the developer what the annual service charge will be and you will probably be given a reassuringly precise number. The important word to look for is estimated. Most modern leasehold service charges are variable, and commonly collected in advance using a budget for the year ahead, with the actual costs reconciled later. If maintaining the building costs more than expected, the lease may allow an additional balancing charge to be collected from leaseholders.

This matters particularly with a new development because there is no history against which to test the estimate. Ask for the full service-charge budget rather than accepting the headline figure. Look at how much has been allocated to:

• Buildings insurance
• Managing-agent fees
• Cleaning and maintenance
• Lifts
• Landscaping
• Concierge or security
• Communal heating
• Mechanical equipment
• Reserve or sinking funds

Then ask what assumptions sit behind those figures. A £2,000 first-year estimate is less reassuring if it assumes unusually low insurance costs, contains almost nothing for future repairs or relies on the developer temporarily covering some of the building's expenses.

The question isn't simply whether you can afford the service charge today. It is whether the flat still works financially if those costs increase once the development is running normally.

2. Find out what happens when the developer leaves

During the early life of a development, the builder may retain considerable control over how the building and wider estate are managed. Eventually that arrangement may change.

Find out:

• Who will appoint the managing agent
• Whether the developer will remain the freeholder
• Whether residents will eventually have any involvement in management
• Whether a residents' management company is being established
• When responsibility for communal areas will be handed over
• Whether the developer is currently subsidising any costs

This handover matters because the service charge you see during the sales period may not reflect the long-term cost of running the completed development.

For example, a developer may still be maintaining unfinished landscaping or paying certain costs while construction continues. Once the final phase is complete, those expenses may fall entirely to residents.

Ask your conveyancer to explain not only who manages the building on completion day, but who is expected to control it in five years time.

3. Check for charges beyond the service charge

One figure on a sales brochure does not necessarily represent the total annual cost of owning the flat. New developments can have several layers of communal expenditure. You might pay a service charge for your apartment building while also contributing towards the wider estate, which could include private roads, landscaped areas, play spaces or other shared facilities. Government guidance specifically warns that new build homes can carry additional costs such as estate facility charges.

There may also be separate bills for communal heating or hot water. Ask for a complete schedule of every compulsory recurring charge associated with the property. Then check whether any of those costs are expected to increase and how your individual share is calculated.

If there are underground car parks, landscaped grounds, multiple lifts, a concierge and a residents' gym, somebody has to pay to operate, insure, clean, repair and eventually replace them. That somebody is ultimately the residents.

Nestee tips:

• Ask for the total annual ownership costs, not simply the service charge.
• Check for separate estate-management charges.
• Ask whether communal heating is included or billed separately.
• Find out whether parking attracts an additional charge.
  
• Stress-test your budget against higher future costs.

4. Understand the lease and additional fees

A new build flat may be brand new, but the lease will potentially govern how you can use it for decades. Read restrictions relating to:

• Pets
• Subletting
• Short-term lets
• Alterations
• Flooring
• Parking
• Balconies - for example is privacy screening permitted

Also ask what administration fees can be charged when you need consent. A freeholder or managing agent may be permitted under the lease to charge fees for dealing with matters such as applications to sublet or make alterations, although variable administration charges must be reasonable.

For most qualifying new long residential leases granted in England and Wales since 30 June 2022, ground rent is restricted to a peppercorn – effectively £0 – with limited exceptions. If you're buying a new lease and are being asked to pay a substantial annual ground rent, ask your conveyancer to investigate it.

5. Ask what happens if the building is delivered late

Buying off-plan introduces another risk: you may exchange contracts months before your flat is finished. This matters because your mortgage offer has an expiry date, your rental accommodation may need extending and you've potentially arranged removals, childcare or work around a move that hasn't happened.

Government buying guidance recommends understanding what happens if construction is delayed and notes that a long-stop date can be included in the contract, allowing a purchaser to withdraw if completion is substantially delayed.

Ask your conveyancer:

• Is there a long-stop date?
• What happens if construction overruns?
• When can the developer serve notice to complete?
• How much notice will you receive?
• What happens to your deposit if the development is seriously delayed?

Don't base major financial decisions on the salesperson's estimated completion month. The contract matters more.

6. Understand the warranty – and what it doesn't cover

Most new build properties are sold with a structural warranty, but don't simply note that there is a 10-year warranty and assume everything is covered for a decade. Different periods can provide different levels of protection.

Before reserving, establish:

• Who provides the warranty
• When cover starts
• What the developer must fix
• What isn't covered
• How defects should be reported
• What happens if the developer refuses to act
• Whether there is a minimum claim value or excess

Keep copies of every document. A warranty is useful protection, but it is not a substitute for inspecting the property properly before completion.

7. Research the developer before you reserve

Spend some time investigating the company responsible for building your home. Look beyond reviews of the sales experience. Search for feedback from people who have actually completed and lived in the developer's properties.

Pay particular attention to recurring complaints about:

• Build quality
• Snagging
• Water leaks
• Sound insulation
• After-sales service
• Communication
• Service charges
• Management handovers

One unhappy homeowner proves very little. Repeated complaints about the same problem across several developments are more informative.

Also establish which consumer code applies. For homes reserved with a developer registered with the New Homes Quality Board, the New Homes Quality Code can provide protection from reservation through to two years after legal completion, including access to the independent New Homes Ombudsman Service where applicable. The Code also requires registered developers to provide information including service charges, management arrangements, warranties, estimated completion dates and future phases of the development.

8. Think about future competition before you buy

A new build flat will eventually become a second-hand flat, which becomes a potential issue if you decide to sell after a few years and a block of shiny, brand new flats has been built next door with the same purchase perks you benefited from. This can significantly impact your asking price and competition to find a buyer.

Before buying, use Nestee’s planning analysis to check the development's future phases and search for other planned developments nearby. If possible, choose a flat with something that will still distinguish it once it is no longer new, such as:

• A better view or position
• A good amount of natural light
• A larger balcony
• Parking
• A corner layout
• Additional floor space and storage
• Decent sized bedrooms

Also compare the price with recently sold second-hand flats, not just other new builds. Paying a large new build premium can make it harder to recover your purchase price if you need to sell relatively quickly. Improving your resale position by buying something future buyers will choose for reasons other than simply being new, will help to mitigate against the risk of your flat potentially losing too much in value.

9. Use an independent conveyancer

Developers frequently recommend conveyancers, mortgage brokers and other advisers familiar with the development, who can often work quickly. This doesn't mean you have to use them. A conveyancer acting for a developer may face competing pressures that do not arise when you instruct your own independent legal advisor.

There can be considerably more documentation than with an established property, including planning agreements, warranties, service-charge structures, management-company arrangements and documents relating to unfinished parts of the development. So, it’s important to appoint a conveyancer with expertise in new build purchases.

10. Risk of low valuations from lenders

Lenders treat new build flats more cautiously than resale homes, primarily due to the ‘new build premium’. Think of it as being similar to buying a new car at a high price and then find it depreciates as soon as the car leaves the showroom. New build properties, particularly flats, can be the same. To offset this risk, a lender will often cap the maximum loan-to-value below the level it would offer on an equivalent existing home. This means you might need to save for a higher deposit (over 10%) to improve your options of lenders to choose from and the likelihood of a mortgage being approved.

Most developers offer incentives to make their properties more appealing to buyers. On the one hand, who doesn’t want a bit of cashback, upgrades, help with stamp duty or deposit contribution to help them get on the ladder - it’s enticing to say the least! However, the flip-side of this is some lenders will deduct the incentive amounts from the purchase price, lowering how much they are willing to lend you. The majority of lenders accept total incentives up to 5% of the purchase price or valuation. If above 5%, you run the risk of the lender reducing the valuation and therefore lowering the amount you could potentially borrow.

This is one of the biggest reasons for causing issues late in the purchase process for new build flat buyers. Declaring the financial incentives up front to your mortgage broker, enables the lender to assess the property on the correct terms and helps avoid a revised offer at a later stage in the process.

Final thoughts

The attraction of a new build flat is obvious. Everything is new, there should be less immediate maintenance and you may be able to move in without spending your first six months renovating.

What you don't have is history. There are no previous owners to tell you what the building costs to run. There may be no service-charge accounts to examine, no established reserve fund and, if you're buying off-plan, no finished flat to inspect. Pay particular attention to the first-year service-charge estimate and ask what the development is expected to cost once it is fully occupied. Understand the sinking fund, additional estate charges, lease restrictions and management arrangements. Check the warranty, arrange a proper snagging inspection and establish exactly what happens if construction is delayed.

Most importantly, separate the home you're being shown from the long-term cost of owning it. The free coffee, perfectly dressed show flat and offer to upgrade the kitchen worktop will soon be forgotten, when the charges unaccounted for at the start fall through your letterbox.