There are lots of benefits to buying a new build compared with an older property. Your home will be more energy efficient and there will be less maintenance to worry about, if any. As the first owner, you don’t need to worry about being stuck in a property chain. You may even be lucky enough to find that the purchase price includes some of the fixtures and fittings. Securing a new build mortgage, however, can be more difficult than arranging a standard residential mortgage.
What is a new build property?
Lenders vary on how they define new builds but usually they are newly built properties that have never been lived in. You can buy a new build that is ‘off-plan’. This means that it is still being built or the construction hasn’t actually started yet. Some lenders accept properties that have been substantially renovated for new build mortgages.
Considerations when buying a new build
You may pay more to buy a new-build home than you would to buy a similar but older property. Known as the ‘new-build premium’, you should be aware that your home’s value may drop within the first few years. This is because once you’ve lived in it, it no longer has the attraction of being brand new. Therefore, don’t rush into selling your new home in Bexley until you’ve lived there for a while.
You usually need to pay a reservation fee to the developer and, if you decide to buy off-plan, be aware that there may be delays. Construction projects invariably have unexpected issues and face delays with the completion dates. This means that your expected moving-in date will also be delayed.
Securing your new build mortgage
Due to the reasons mentioned above, it can be harder to arrange a mortgage for a new-build home. You will have to pay a larger deposit and higher interest rates than you would with a standard residential mortgage. The lending criteria may be stricter and the timescale for getting your new build mortgage will be an important factor.
Your new build mortgage deposit
As the value of a new-build home can drop as soon as someone moves into it, this increases the risk for the lender. To counteract this, lenders ask for higher deposits and this is usually tiered depending on whether you’re buying a new-build house or a new-build flat. Typically, lenders agree to a loan-to-value (LTV) ratio of 85% for new-build houses. This means that you can expect to pay a 15% deposit. For new-build flats, lenders may stipulate a lower LTV, such as 75%, so that you have to pay a 25% deposit.
Schemes are available to help if you’re struggling to save an adequate deposit. With Deposit Unlock, for example, you can secure a 95% mortgage from one of the scheme’s participating lenders. This means you only need to pay a 5% deposit to buy your new-build home. To help first-time buyers get onto the property ladder in England, the First Homes Scheme provides a discount of at least 30% on the price of new-build homes. Shared ownership allows you to buy a percentage of the new build and pay rent for the remaining percentage.
New-build developer incentives
You may be offered an incentive by the developer. For example, to have the legal fees included in the purchase price or the stamp duty paid for. Just be aware that if your incentive is more than 5% of the new-build property’s value, the lender may deduct the extra amount from the purchase price. This, in turn, reduces the amount you can borrow.
For example, you’re buying a new-build home in Bexleyheath for £200,000 and are given an incentive that’s valued at £10,000. This is 5% of the purchase price and, therefore, has no effect on the amount you can borrow. However, if you’re offered an incentive of £15,000, this is 7.5% of the purchase price. As a result, the lender may take £5,000 off the purchase price when looking at how much they’re prepared to lend you.
The timescale for your new build mortgage
There are two issues you may face when it comes to timing. Your mortgage offer will be valid for a set period, such as 6 months. If you’ve chosen to buy a new build in Pimlico that’s off-plan, your mortgage offer will expire if the property hasn’t been finished in time. If it looks as though this is going to be a possibility, the lender may extend your mortgage offer. However, some lenders will insist that the mortgage process is started again. Other lenders cater to these delays by providing longer validity periods for mortgage offers on new builds.
The other issue is that some developers have a strict deadline of 28 days from the point you’ve paid a reservation fee to the exchange of contracts. Arranging a mortgage in such a short time frame can be difficult for lenders. It helps to have a mortgage in principle before you start viewing new builds to save some time. Our mortgage brokers also know which lenders can process new build mortgage applications quickly, ensuring that this deadline is met.
The property value
If the value of your new build changes between the time you’ve paid the reservation fee and the end of the construction phase, you will still be liable to pay the original agreed purchase price. This is regardless of whether the value has increased or decreased and can affect your mortgage. If, for example, your mortgage offer is withdrawn and the lender will only agree to a lower amount, you won’t have enough to buy the property. However, you will still be legally committed to buying the new build or providing the developer with compensation. You will lose your deposit and the developer can take legal action to recover the difference between the original purchase price and the lower amount that the property is resold for.
We make it easy to arrange your new build mortgage
Our mortgage brokers are skilled at handling mortgages for new builds in London, Kent and Edinburgh. They can advise you on the various schemes available to help purchase your new build. For example, shared ownership, Deposit Unlock and the First Homes Scheme. A mortgage in principle can be arranged and, when you’ve found a new-build home that you want to buy, they can approach the right lender on your behalf.
Give us a call on 01322 907 000 to find out how much you can borrow for your new build mortgage. We have unrestricted access to the market so our mortgage brokers can search for exclusive deals that aren’t available publicly. As well as arranging your new build mortgage, we can also arrange your new build home insurance and mortgage protection insurance.