Investing in New Builds vs. Older Properties: Pros and Cons

For rental property investors, deciding between buying a new build or an older property is a significant choice. Both offer advantages and challenges, influencing everything from rental yields and capital appreciation to maintenance costs and mortgage options. This article provides an introduction to some of some of the factors involved.

Financial Performance: Purchase Prices, Growth and Rental Yields

Initial Purchase Price and Value Retention

New-build properties typically command a premium of 20-50% over older homes. In 2023, the average new build was priced at £425,000, about 52% higher than existing homes (£280,000). A key issue for investors is short-term depreciation: new builds often drop in value by 7-10% in the first few years [1]. The "newness premium" wears off as soon as the home is occupied, meaning that the resale value can be lower in the short term.

Older properties, especially those in established areas, generally see steadier price appreciation. The property market has historically favoured older homes in central urban locations, where land scarcity helps support rising prices [2]. However, well-located new builds can also see strong price appreciation, over time, particularly in regeneration areas.

Rental Yields

Rental yield is a critical factor for buy-to-let investors. While new builds offer convenience and lower maintenance costs, they often generate reatively lower rental yields due to their higher purchase prices. By contrast, older properties tend to have stronger yields because they can be relatively cheaper to buy and can be improved to generate higher rental income.

Average rental yields for older properties range from 6-8%, while new builds typically yield 4-6% [3]. An investor purchasing an older property in a high-demand area can potentially charge higher rent after renovations, boosting overall return.

Long-Term Investment Value: Appreciation and Rental Demand

1. Historical Price Growth Trends

Over the past decade, new builds have outperformed older properties in certain regions due to infrastructure improvements and government incentives, such as Help to Buy [6]. However, capital appreciation is highly dependent on location.

Older homes in prime urban areas (for example, London, Manchester and Birmingham) tend to appreciate steadily due to high demand. Many Victorian and Edwardian properties have seen steady price growth in the past 10 years, largely because of their scarcity [2].

New builds can appreciate well in up-and-coming neighbourhoods with good transport links and new amenities. A key risk is potential oversupply. If a developer builds hundreds of similar homes, prices may remain stagnant [3].

2. Rental Market Demand

Both new and old properties can attract strong tenant demand, but for different reasons:

• New Builds: Popular with young professionals and families due to modern features, energy efficiency and lower maintenance. They are easier to rent out quickly but may not command premium yields.

• Older Properties: High demand in city centres, university towns and historic districts. While they require more upkeep, landlords can potentially increase rental income through renovations.

Maintenance and Ongoing Costs: New vs Old

One of the biggest cost differentiators between buying a new build and an older home is maintenance.

1. New Build Advantages

• Lower ongoing costs: Everything is brand new, reducing major repairs for at least the first 5-10 years.

• Warranty coverage: Most come with a 10-year NHBC warranty covering structural issues.

• Energy efficiency: 85% of new builds have A/B-rated energy performance, helping save up to £1,685 annually on bills [7].

2. Older Property Challenges

• Higher maintenance costs: Older homes require ongoing repairs, especially roofs, plumbing, electrical systems and central heating.

• Hidden costs: Buyers should budget for around 1% of the property value per year for upkeep.

• Potential major renovations: Upgrading insulation, wiring, heating, bathrooms and kitchens can cost a lot but may improve rental yield and property value significantly.

Mortgage and Financing Considerations

Mortgage lenders treat new builds and older homes differently.

1. New Builds

• Higher deposit requirements: Many lenders require higher deposits for new builds vs. older properties as a percentage of property value.

• Stricter lending criteria: Some lenders assume new builds will drop in value initially and restrict lending further.

• Developer incentives: Some offer stamp duty contributions, cashback deals or free furnishings to attract buyers.

2. Older Properties

• Easier financing: More lenders offer higher LTV mortgages for older properties.

• Renovation loans: Investors can access buy-to-renovate mortgages to fund upgrades.

Location and Demand: Where they are built and Investment Returns

1. Older Homes: Central and Established Areas

Older properties are often located in city centres, historic towns and commuter hubs, where land is scarce. These locations benefit from:

• Better transport links: Proximity to train stations and motorways.

• Established amenities: Schools, parks and high streets are already in place.

• Higher land value: Less risk of oversupply.

2. New Builds: Fringe and Growth Zone

New builds are typically built in suburban or regeneration areas with lower land costs. Developers focus on:

• Transport connectivity: Many are near new train stations or motorway junctions.

• Local amenities: Some projects include parks, shops and schools.

• Future price growth: If located in a planned regeneration zone, capital gains can be significant.

Lifestyle Considerations: Energy Efficiency, Space and Personal Preference

For occupiers, lifestyle factors matter.

1. New Build Pros

• Turnkey convenience: Move-in ready with modern layouts.

• Lower energy bills: Built to current energy standards.

• Less maintenance stress: No immediate repairs needed.

2. Older Property Pros

• More space: Larger rooms, high ceilings and bigger gardens.

• Character and charm: Period features such as fireplaces and bay windows.

• Established communities: Less transience than in new estates.

Surveys show that 75% of buyers prefer homes over 20 years old, valuing space and unique features over newness [6].

Conclusion

Choosing between a new build and an older property depends on investment goals and personal preferences.

• For hands-off investors: New builds offer low maintenance but may have lower yields and short-term depreciation.

• For high-yield investors: Older properties offer higher rental income and capital growth potential, and better central locations, but require more maintenance and renovation.

A hybrid approach, owning both a new build for steady rental income and an older property for value appreciation, could be an optimal long-term strategy.

By considering financial performance, location, tenant demand and maintenance costs, investors can make the best decision for buying a new build or opting for an older property.

FAQs

Q. Are new builds a good investment?

A. New builds can be a good investment, particularly in regeneration areas or for hands-off investors who want low-maintenance properties. However, they often come with a price premium and may experience short-term price depreciation before appreciating in value. Rental yields also tend to be lower compared to older properties due to the relative high purchase price.

Q. Do new builds appreciate in value as much as older homes?

A. New builds can appreciate well, especially in high-demand locations with planned infrastructure improvements. However, they often lose value in the first few years due to the "newness premium" wearing off. Older properties in established areas generally see steadier long-term capital appreciation.

Q. Which type of property has better rental yields: new builds or older homes?

A. Older properties typically offer higher rental yields (around 6-8%) because they are cheaper to purchase and can be renovated to increase rental income. New builds, while easier to rent out due to modern features and energy efficiency, tend to have lower yields (4-6%) due to higher purchase prices.

Q. Are there higher mortgage deposit requirements for new builds?

A. Many lenders require a higher deposit for new builds than for older properties. This is because lenders perceive new builds as riskier due to potential short-term price depreciation.

Q. Do new builds have lower maintenance costs than older homes?

A. Yes, new builds generally have lower maintenance costs since everything is brand new and they are also covered by warranties such as the 10-year NHBC guarantee. By contrast, older homes often require more repairs and maintenance and renovation.

Q. Which is better for long-term investment: a new build or an older property?

A. It depends on your investment strategy. New builds offer low-maintenance, steady rental income and energy efficiency, but may appreciate more slowly. Older properties provide better rental yields and long-term capital growth but require higher upkeep. A mix of both could be a productive investment strategy.