New build a loser?

Banks are now reducing the LTV they will offer for new build properties but not in the second hand market and today we will look at why they might do this.

To begin with there is the rationalising of price in new build developments, that doesn’t mean the prices won’t drop further, it means that many builders are pricing to the market and not to what they want them to be worth. This however, is a tricky proposition for banks who may be lending on said properties.

Imagine this, ‘Phase 1 selling from €365,000’, now just over a year later ‘Phase 2 selling from €250,000’ and these are basically identical or comparable properties. Values are (in essence) set by what a person is willing to pay for an asset, and in this example the properties are all now worth €250,000 irrespective of what price they sold at. This means the banks security has just dropped by a similar amount.

The market is witnessing the most spectacular falls in the new build area, thus banks are responding by lowering LTV‘s or resisting lending on them entirely, this will create a predicament for the sellers of new build as clients who may opt to buy them will find finance even more difficult to obtain than it already is (and it ain’t easy).

Due to the eradication of stamp duty for first time buyers they will not need to differentiate and the second time buyers/investors may opt to stay away too because of the difficulty in raising a mortgage associated with new build property.

Valuers are finding it near impossible to accurately gauge values, how do you place a value on a property when there is such volatility surrounding its price?

You can expect the criteria surrounding new builds to harden over time as the price drops become more prevalent, for developers it is a perfect storm, now that they are lowering prices the people who actually want to purchase are having difficulty raising finance, not because of their own situation, but rather down to their choice when it comes of the type of house they want to live in, not where.

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