New Build Mortgages

Yes, although you’ll need to pay a larger deposit, such as 20% or 25% of the new build’s value. This is because there are additional risks for the lender. If the building phase is delayed, this delays when you can rent out your property to earn a rental income. As well as that, the value of your new build may drop as soon as a tenant moves in.

The projected rental income needs to meet the lender’s criteria. This must usually cover the mortgage payments by 125%, although some lenders have higher requirements, such as 145%.

Our mortgage brokers can use their new-build and buy-to-let expertise to find the most suitable lenders. They can check that you meet the strict eligibility criteria and oversee the mortgage process to ensure a smooth transaction.

Lenders have their own criteria for the affordability of a new build mortgage when you’re self-employed. As long as you satisfy their requirements, there’s no reason why you shouldn’t be offered a loan.

You need to provide extra documentation to prove your income, such as 2 or 3 years of certified accounts and your SA302 forms for the last 2 or 3 years or a tax overview from HMRC. Our mortgage brokers can go through the criteria with you and ensure that all of the necessary documentation has been prepared correctly before your application is submitted to a lender.

Having bad credit can make it more difficult to secure a new build mortgage but it’s still possible. We work with specialist lenders who offer more flexibility with their criteria. They will look at the reasons for your bad credit issues, how long ago they occurred, how severe they are and what you have done to improve the situation since then.

Different lenders deal with different types of bad credit issues. Some, for example, are willing to look at applications where borrowers have made one or two late payments or have a lack of credit history. Others have a higher appetite for risk and are willing to take on more severe cases, such as a history of missed payments, county court judgements (CCJs), bankruptcy or repossessions.

Whatever your circumstances, our mortgage brokers can ensure that the most suitable bad credit lender is approached for the best chance of success. Before applying for your new build mortgage, our brokers can also guide you on ways to improve your credit rating to help boost your application. Just be aware that when you have bad credit, you will more than likely have to pay a larger deposit and a higher interest rate to help mitigate the lender’s risk.

Yes, stamp duty is payable on new builds so you need to factor this into your budget. If you’re a first-time buyer, stamp duty isn’t payable up to £300,000 as long as you’re buying the new build to be your home and its price doesn’t exceed £500,000. You’ll need to pay 5% stamp duty on any balance between £300,001 and £500,000.

If buying your new build via a shared ownership scheme, you can either pay the full amount of stamp duty based on the property’s market value or pay it in stages.

Some developers offer incentives to encourage you to buy one of their properties. One of these incentives may be to pay your stamp duty, which can save you a considerable amount of money.

You may be unsure as to whether or not you need home insurance because your new build should be covered by a warranty. This will be valid for 10 years and provide protection against structural defects via the National House Building Council (NHBC). The developer may also provide you with a warranty, providing you with additional cover for the first 2 years.

These warranties don’t cover your property in the event of unexpected events, however, such as fire, flooding, subsidence or vandalism. For this type of protection, you need new build home insurance, which consists of buildings and contents insurance. You can take out the buildings and contents insurance policies separately or combine them for more cost-effective cover. Your lender will usually insist that you arrange buildings insurance before you exchange contracts.

As one of the protection services we offer, we can arrange your home insurance policy for you, ensuring that you have the right level of cover for your property, budget and needs.

It can be harder to get a new build mortgage due to lenders having stricter criteria. This is mainly because of the new build premium, which results in new builds dropping in value after the first few years of occupation. To counteract this risk, lenders usually require a higher deposit than would be needed for an older property. If you’re buying a newly built flat, you’ll more than likely have to pay a bigger deposit than if buying a newly built house. If you don’t have a large deposit, there are schemes to help you, such as Deposit Unlock and the First Homes scheme. Lenders also tend to charge a higher interest rate to help mitigate their risk.

A property is generally considered to be a new build by lenders if it was built in the last 2 years and is being occupied for the first time. Some lenders consider properties that have had extensive renovations or have been converted within the last 2 years as new builds.

If you want to buy a property that is still being built or construction hasn’t started yet, this is called buying ‘off plan’. Be aware that there may be time frame issues with this as delays often occur during the construction process. In this case, you need to check that the lender is prepared to extend your mortgage offer should the need arise.

Yes, 95% new build mortgages are available. Whilst many lenders require a higher deposit, there are lenders willing to offer mortgage loans with a smaller deposit of 5%. This is usually for a newly built house rather than a flat, which tends to have a higher deposit requirement. Even so, lenders who accept lower deposits can usually accept 10% for a newly built flat.

Low-deposit schemes

There are also various schemes available that enable you to take advantage of a 95% mortgage. For example, you can buy a new-build home through a participating home builder in the Deposit Unlock scheme. You only pay a 5% deposit and your 95% mortgage must be through a participating lender. If you’re a first-time buyer, the government-backed First Homes scheme enables you to get at least a 30% discount on the price of a new build. For your 5% deposit, it’s calculated on the discounted value rather than the full property value. This makes it much easier to afford.

Shared ownership is another affordable option. This enables you to buy a share in a property, which is typically 25% to 75%. A minimum deposit of 5% is required and this is calculated on the share you buy, not the total property value. Just like the First Homes scheme, this significantly improves your affordability. With Own New, participating developers offer financial incentives. You can either pay a low deposit of 5% or choose to have lower interest rates for a fixed term.

Our new build mortgage experts can help you

Our mortgage brokers know which lenders offer 95% mortgages for new builds. This means that you don’t need to worry if you haven’t been able to save the higher deposit amount that many lenders require. Our brokers can also advise you on the different schemes available and check your eligibility, should you wish to take advantage of one of them.

New build mortgages are considered to be riskier than those for older residential properties. This is because new builds are usually purchased at a higher price than similar, older properties, which is called a new build premium, and tend to drop in value after the first few years. This means that lenders usually have a higher deposit requirement. Typically, lenders are willing to offer a loan-to-value (LTV) ratio of 85% for newly built houses, which means you’ll need a 15% deposit. The deposit requirement for newly built flats is generally higher, with lower LTVs of 75% usually offered, requiring a 25% deposit.

This isn’t always the case, though, so don’t worry if you’re struggling to save a large deposit. Lenders vary with their criteria so some offer more flexibility than others. Some lenders, for example, accept a 5% deposit for newly built houses or a 10% deposit for newly built flats.

There are also schemes you can take advantage of to help with the home-buying process. For example, Deposit Unlock enables you to buy a new-build home with a 5% deposit. If you’re a first-time buyer, the First Homes scheme provides you with a discount of at least 30% on the price of a new-build property. For your deposit, this must be at least 5% of the discounted purchase price.

If you haven’t been able to save a larger deposit, just let our mortgage brokers know. They understand different lenders’ criteria and can approach lenders with smaller deposit requirements for new builds. The more deposit you can pay, however, the less you’ll need to borrow. This means that your monthly mortgage payments will be lower and you may benefit from a lower interest rate. A lower rate will make your mortgage much cheaper over the term of the loan.

A new-build warranty protects you, as well as the lender, against any defects that may be found in the property. Whether it’s a building or a structural warranty, it effectively acts as an insurance policy, giving you peace of mind that you won’t be left out of pocket should issues arise that weren’t evident when you purchased your new-build home. These issues can include defects or structural problems that have arisen from the materials used, workmanship or design. Warranties, which are provided by the developer or builder, vary in what they cover so it’s important to check this.

Most new-build homes have a 10-year Buildmark warranty from the National House Building Council (NHBC). Lenders accept different warranties and our new build mortgage brokers can check for lender acceptance of the warranty you have before submitting your loan application.

To entice buyers, some developers offer incentives. These can include paying your legal fees or stamp duty, including free carpets, making a contribution towards your deposit or mortgage interest payments, providing a free parking space, offering free upgrades, giving you an annual travel card or offering part-exchange for your current home.

Whilst these incentives can be very appealing, they may affect how much you can borrow for your purchase. This is because lenders factor in the value of builders’ incentives when dealing with the mortgage calculations. Generally, lenders are willing to accept incentives of up to 5% of the property’s value.

If the incentive exceeds 5% of the value, however, the amount above 5% is deducted from the purchase price. The net purchase price (or property valuation, if this is lower) is then used to calculate the loan-to-value (LTV) ratio. This determines how much you can borrow and as the LTV is then higher, you may have to pay a higher interest rate. Non-cash incentives, such as white goods, don’t tend to affect mortgage applications.

If the value of the incentive is too high, the lender will decline your mortgage application. The criteria for this differ between lenders. For example, some will accept incentives up to 10% of the purchase price, while others may be willing to accept up to 15%. You may be required to provide a minimum deposit, such as 5%, from your own funds, regardless of the incentive you’ve been given.

Various factors affect new build mortgages, such as the property you buy, the builder you buy it from and the lender you obtain a mortgage through. They can all determine whether or not your new build mortgage works out cheaper than a mortgage when buying an older property.

Lenders, for example, tend to charge higher interest rates to help mitigate their risk. This is because new-build homes drop in value within the first few years of occupation. As such, this can make a new build mortgage more expensive. However, some lenders offer lower rates to attract new customers. Also, new-build properties tend to be energy efficient compared with older properties and many lenders reward borrowers for buying energy-efficient properties. You may qualify for a green mortgage deal and benefit from incentives that include cashback or a more competitive interest rate. These can make your new build mortgage cheaper.

Another consideration is that builders offer incentives to encourage buyers. These can include financial contributions to your mortgage in the form of help with your deposit or towards your mortgage payments or even a lower interest rate, such as via the Own New scheme. Any of these can help to make your new build mortgage cheaper.

Yes, there are various schemes to help with your affordability when buying a new build. They differ in the way they can help you, such as enabling you to pay a low deposit, providing a discount on the purchase price or helping you save on the interest rate. Examples of the schemes available include First Homes, Deposit Unlock, shared ownership and Own New, which we’ve detailed below.

First Homes

Available in England, the First Homes scheme helps first-time buyers get onto the property ladder by providing a discount of at least 30% on the purchase price of new builds. Property prices are capped at £250,000 after the discount has been applied or £420,000 in London. To be eligible, your household income cannot exceed £80,000 or £90,000 if you live in London. You need to secure a mortgage for at least 50% of the discounted purchase price and pay a deposit of at least 5% of the discounted price.

Deposit Unlock

Using Deposit Unlock, you can buy a new-build home with just a 5% deposit. This home needs to be purchased via a participating home builder. Likewise, your mortgage needs to be arranged via a lender participating in the scheme. Mortgages are available under this scheme for up to £750,000, subject to your eligibility. You can take advantage of this scheme whether you are a first-time buyer or a home mover.

Shared ownership

With shared ownership, you can buy a share of a property, making your purchase much more affordable. The share you can buy is typically 25% to 75% and you only need to pay a deposit of 5% of the share you buy, subject to the lender’s requirements. The mortgage is also based on the share you buy so it’s much easier to pass the lender’s affordability checks. For the remaining share of the property, you pay rent at a discounted rate. This is generally 15–20% lower than the market rate. Later on, when you’re in a financial position to do so, you can increase your share of the property by a process called staircasing.

Own New

As a collaboration between lenders and home builders, Own New makes new-build homes more affordable for buyers. Depending on which Own New scheme the home builder offers, you can either pay a low deposit of 5% or have a low interest rate for a fixed period of either 2 or 5 years. Either of these options makes it easier to afford a newly built home.

Our mortgage brokers can discuss the schemes with you to help you understand the pros and cons of each one. They can check your eligibility and ascertain whether you can combine any of the schemes to make your home purchase even more affordable.

Mortgage offers are usually valid for 6 months so you may be concerned as to what will happen if you’re buying a new build that’s off-plan. Delays are often experienced during the construction process, which means that you risk your mortgage offer expiring. Lenders offering new build mortgages understand the potential delays and can cater to this. Some provide longer mortgage offer validity periods, such as 9 months, and many offer extensions, such as 3 or 6 months, should the need arise.

If you know that your new-build home won’t be ready before your mortgage offer is due to expire, get in touch with the lender and ask for an extension. This usually needs to be done 30 days before the expiration date. If you’re unable to secure an extension, you may have to start your mortgage application again. This can result in you being offered a different interest rate than the one you’d previously agreed on.

Our new build mortgage brokers can help you with this before you apply for a mortgage. They know which lenders offer longer validity periods and those who are more flexible when it comes to extensions. They will also oversee the mortgage process from start to finish, enabling them to identify any issues along the way so they can try to resolve them as quickly as possible.

Check the long-stop date

It’s advisable to ask the developer for a long-stop date. This is the date that the property is to be completed by. Ensure that this date falls before the end of your mortgage offer and negotiate this if necessary. Then, once you’re certain that the completion date is before your mortgage offer expires, ask your solicitor to write this date into the contract. That way, if your home isn’t completed in time, you have the right to walk away and are entitled to a full refund from the developer.

Yes, provided that the lender agrees, you can use a gifted deposit when applying for a new build mortgage. Most lenders accept gifted deposits from immediate family members, while others may consider accepting them from friends or distant relatives. Some accept them from other sources. For example, a developer may offer you a discount on the price of a new build as an incentive to buy it. This would be used as a gifted deposit, known as a builder’s gifted deposit.

The lender will require a signed declaration letter stating that the funds have been given as a gift, not a loan. Evidence of where the funds have come from also needs to be provided to comply with anti-money laundering checks. There may be other criteria to meet as well, depending on the lender, such as contributing some of your own funds to the deposit in addition to the gifted sum.

If you have a gifted deposit, our mortgage brokers will approach the right lenders on your behalf. Whether you’ve received it from a close family member, a builder or a friend, they know the differing criteria between lenders. If you don’t have any additional funds for a deposit, they know which lenders won’t require an extra contribution from you.