Last reviewed on 6th August 2023 by Martin Alexander (Mortgage Advisor)
A new build property can make a great buy to let investment for many reasons. Modern décor, energy efficiency, and immaculate interior are just a few reasons why investing in a new home can have its advantages. That being said, a new build buy to let mortgage is often different from a regular mortgage.
Landlords each have their own buy to let strategies and investing in new homes can certainly work. Nonetheless, certain buy to let investments carry more risk, which we’ll cover in this guide.
Our advisors are available to help you get started with your mortgage. You can also continue to read our guide on how to get a buy to let mortgage on a new build.
Is it difficult to get a buy to let mortgage on a new build?
Although new build buy to lets are a popular choice of investment, getting a mortgage can be difficult. This is because lenders often see new properties as high risk when compared to older, more established homes.
You’ll perhaps have a lot less maintenance work to do in the early years of owning a property that’s just been built. Furthermore, homes that have yet to be lived in are often popular with prospective tenants. Lenders also understand this, but property prices on new builds can sometimes fluctuate. This is especially true if your buy to let is in an entirely new area that’s yet to be established.
Getting a mortgage on a property that’s off-plan
Lenders also recognise the risk in buying your property off-plan, before your investment has even been built. This is because lenders aren’t able to physically assess your property, as it’s yet to be built. As a result, it’s difficult for lenders to decide whether a mortgage will be viable.
Property prices can also change before building works have been completed. If lenders approve a mortgage for a certain amount, you may be left with a shortfall which again, can put the lender and yourself at risk.
Delays in completing the build can also occur which is something your lender will think about. Nonetheless, if you meet a lender’s buy to let criteria, getting a mortgage shouldn’t be too difficult. It also helps to have a well-prepared mortgage application to support your assessment.
Considering all of this, you may think that getting a buy to let mortgage on a new build isn’t a good idea, but this isn’t the case. Investing in new builds can be a great strategy for landlords. Furthermore, there are lenders that also recognise this and offer competitive rates as a result. Certain lenders may also prefer to lend on new builds, as they’re aware of the advantages they can offer.
Should I invest in a new build?
Investing in a new build can make perfect sense for some landlords. This is because new properties need to adhere to strict energy efficiency guidelines which also meet guidelines for landlords. Furthermore, maintenance costs should be non-existent, particularly during the first few years of ownership. As a result, you may be able to generate more rental income.
Brand-new properties are often very attractive to prospective tenants. This is especially true when they’re advertised on property portals alongside rental homes that need modernising. As a landlord, it’s likely you’ll be able to charge a premium rent as your property hasn’t yet been lived in.
On the other hand, as a buyer, you may also have to pay a premium because of the age of the property. Even if you do charge a higher-than-average rent, you may still struggle to make your investment work. It could be more viable to invest in an older property if the yield is a lot higher.
Each landlord has a different set of investment goals, so it all depends on what you’d want from your investment. Whether you’re looking for a long-term investment for capital gain or would like to cash flow each month, investing in a new build could be ideal.
Having the right mortgage in place can support your investment goals. Finding the right mortgage is one of the most important things you can do as a landlord and as a homeowner in general. This is to ensure you’re not overpaying and can comfortably meet your mortgage payments.
How much deposit will I need for a buy to let on a new build?
If you’re buying a new build, it’s likely you’ll need a slightly higher deposit for your buy to let mortgage. Most lenders require a 35% deposit due to the increased risk that they’re taking. If you were getting a buy to let mortgage on an older property, you’d perhaps require a deposit of around 20-25%.
Calculating the costs involved with your investment is a great place to start. This can often be the deciding factor in whether you should invest in a property that’s brand new or an older build. A mortgage assessment for a new build buy to let can also be difficult when compared to a typical mortgage. Again, this is because of the increased risk involved.
Being an experienced landlord can also help your application. This is because lenders are able to assess your existing portfolio and how you’ve managed your mortgages. Furthermore, you’ll have assets that you may be able to further leverage if needed.
This doesn’t mean to say that a new landlord will struggle with their application. If your mortgage is placed with a suitable lender, then approval shouldn’t be an issue. This is dependent on the rest of your application meeting a lender’s criteria. For instance, the potential rental income from your buy to let needs to meet at least 125% of the mortgage. Some lenders may request more.
Will I qualify for a buy to let mortgage?
Lenders vary quite considerably and this is especially true on buy to let mortgages for new builds. Although you may qualify with one lender, a different lender can decline you. That being said, this is only likely if you approach lenders yourself and without the assistance of an experienced advisor.
Advisors are aware of each lender’s criteria. This is particularly important when searching for a buy to let mortgage and even more so if the property is new. If your circumstances aren’t straightforward, such as being self-employed or having bad credit, then it can become further difficult to find a suitable lender.
If you have circumstances that are making it hard for you to find a lender, speak to our advisors. We’ll then inform you of what’s possible. Applying with a lender yourself is rarely advised as you risk harming your credit file if you’re declined.
Some lenders won’t accept bad credit at all. On the other hand, certain lenders may require minimum income requirements, whereas other lenders won’t. This is why applying with the right lender is crucial in being approved and keeping your credit file intact.
How to start your mortgage application
If you’ve found a property or are considering investing in a new build, speak to an advisor. Having a buy to let mortgage in place is something you’ll want to have before agreeing to anything else. This way, you’ll have a budget to work with and you’ll also know the rent you’d need to charge your tenants.
Having this sort of clarity early on can also go a long way with developers who will also understand your investment goals and may have other properties more suitable.
Often enough, developers will have many different properties for sale, including different build types, and varying numbers of bedrooms. Matching a property to the mortgage you’ve been approved for is crucial, especially when you’re investing in a property that’s just been built.
As advisors, we’re able to help select the right mortgage for your buy to let. Furthermore, we’re able to help you understand which properties may be better suited than others, simply on the prices and lenders involved.
You can make an enquiry to start the mortgage process. An advisor will then run through everything with you and make sure you’re on the best mortgage possible. We’ll then guide you further until you’ve finalised the purchase up until completion.
About the author
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.