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Mortgages for new build homes

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Mortgages for new build homes

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Last reviewed on 8th April 2022

Buying a new-build home can be an exciting time, but finding the right mortgage isn’t always easy.

This is why getting a mortgage for a new build before you begin your home search is recommended. Doing so allows you to work with a budget and make buying decisions with confidence.

New-build mortgages aren’t that different from regular mortgages. That said, there are pitfalls to be aware of which we’ll explain in this guide.

What is a new build property?

Mortgage lenders each have their own definition of what a new build home is. That being said, the majority of lenders would class a newly built home as one that’s just been built, converted or refurbished within the last two years.

Even if your property hasn’t yet been built, getting a mortgage off-plan is still possible. That said, it is more complicated.

Advantages of buying a new build

  • Save money on early repair costs
  • New homes are built to be energy efficient
  • Developers may allow you to customise your home
  • No upward chain

Disadvantages of buying a new build

  • Can be more expensive than older homes
  • Buying off-plan can result in development delays
  • You risk losing reservation fees if you withdraw from buying
  • Mortgage assessments tend to be more strict

Why are mortgage assessments for new builds more strict?

Lenders tend to be less flexible with new build mortgage applications. Furthermore, your application will face a more thorough assessment from underwriters.

This is mainly because of volatility, as new build properties can lose some value once they’re initially purchased. Lenders often request higher deposits when compared to regular mortgages to minimise risk.

How fast can I get a new build mortgage?

Some new build developers will require you to complete your purchase within a certain timeframe. You may only be given 28 days from when you initially paid your holding fee, but each developer varies. For new build mortgage lenders, meeting tight deadlines can be difficult, this is why it’s often advised to arrange your mortgage before you pay any fees.

Although a mortgage in principle can be provided within a day, a formal mortgage application can take weeks. This is because it involves submitting documents in addition to the lender carrying out their assessments. Furthermore, issues with your application can cause delays so it’s best to avoid this situation by applying beforehand.

New build mortgage criteria

When should I apply for a new build mortgage?

The timing of your mortgage is very important when buying a new home. Arranging a mortgage too early can result in your application expiring and leaving it too late can cause a multitude of problems.

The mortgage process for buying a new build:

  1. Check your affordability
  2. Begin your home buying search
  3. Decide on a mortgage type – Government scheme or regular mortgage
  4. Check your new build warranty is recognised by your lender
  5. Apply for a mortgage
  6. Pay a reservation fee to your developer
  7. Appoint a conveyancer

It’s important to set a budget and you’ll only be able to do this by speaking to a mortgage advisor who can assess your affordability. Finding a property before arranging a mortgage is rarely advised, as you simply won’t have a budget.

Leaving your mortgage until the very end can leave you in a difficult position and you may even lose your property and any deposits you’ve paid to your developers. This can happen if you miss a deadline for when your mortgage needs to be completed.

ask a mortgage broker

Will I need a new-build mortgage lender?

Mortgage lenders don’t have specific deals solely for newly built properties. Whether the property is old or new, the mortgages you’ll be eligible for will be the same. That said, lenders do treat mortgage applications differently.

If you’re wanting to get a buy to let mortgage on a new build, it’s likely you’ll need a 35% deposit as a minimum. You can look into purchasing your new build with a Help to Buy mortgage if you have a 5% deposit.

Can I buy a new build off-plan?

If you wish to buy your new build off-plan, lenders usually have no issue with this. As you can imagine, buying a new build off-plan isn’t uncommon. It’s important to note that lenders won’t release mortgage funds until the building work is complete. This is sometimes where problems can arise.

Mortgage offers are typically valid for 3-6 months. If developers don’t complete the build within this timeframe, you may need to reapply for your mortgage. A lot can change over a few months, so lenders need to be sure their mortgage assessments are current.

How can I extend my mortgage offer?

Some lenders may extend your mortgage offer, but this depends on the lender and the situation at hand. There are mortgage deals that already include extended offer periods that exceed six months.

If you wish to buy off-plan, but feel as though the process will take longer than six months, you’ll benefit from mortgages with extended offer periods. In contrast, your home may be ready, but your mortgage isn’t. In situations like this, you risk losing the property as developers can only wait so long.

If you find yourself in this position, you can read our article on fast mortgage applications.

What if the property value changes?

Whether your property value goes up or down during the building phase, you’ll be tied into paying the original purchase price. This can also incur changes to your mortgage, such as the amount you’ll need to borrow.

Any changes need to be made clear to the lender before completion. For instance, if house values rise quite considerably, lenders can withdraw which may leave you with a shortfall.

Will I still need to pay a reservation fee?

Developers tend to charge reservation fees. Withdrawing from buying can result in you losing any fees you’ve paid upfront. This is why it’s important to ensure that purchasing a new build is something that you’re certain of. Furthermore, having the right mortgage in place before you commit to paying any upfront fees is recommended.

With thousands of deals to choose from, we understand that finding a suitable deal isn’t easy. Furthermore, there are a lot of risks involved when buying a property off-plan. You can speak to an advisor who can help you avoid potential problems.

Will incentives from developers affect my mortgage?

Developers may offer incentives to entice buyers. Although this sounds great, incentives can sometimes have a negative impact on your mortgage rates.

If the value of incentives is less than 5% of the property value, it’s rarely a problem. In comparison, if incentives go above 5%, your loan to value can also increase.

A higher LTV often means higher interest rates, so do keep an eye on the numbers.

Developers may offer incentives such as:

  • Covering the cost of legal fees
  • Payment of stamp duty
  • Cashback
  • Deposit contributions

Some developers may include additional upgrades on the new build. This can include packages for premium kitchens, bathrooms, and home furniture. Incentives are attractive but do keep your mortgage in mind, as they can affect the overall price of your purchase.

Getting the best mortgage rates for your new build

Buying a new build is very different from buying a regular home. With options such as buying off-plan and developer deadlines to meet, there’s a lot that can go wrong. Having the right mortgage from the very start is crucial. Furthermore, having a great mortgage rate can save you money along the way.

Brokers can guide you through the new build process and ensure your mortgage will meet your developer’s deadlines. Not having your mortgage funds in place can result in your sale falling through.

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About the author

Mortgage Advisor | More Articles

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.