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Mortgages for new build homes

Last updated on 8th December 2023 by Martin Alexander

Buying a new home can have advantages, but a new build mortgage can be challenging. We’ll look at how you can improve your mortgage application and what to be aware of before applying.

What is a new build property?

A new build property is a house or flat that’s newly built with no previous owners.

Some developers may offer you an ‘off-plan’ new build. This means the house is in the process of being built but still needs to be completed. You can get a mortgage for an off-plan home, but you’ll need to buy from a reputable developer.

What are the benefits of buying a new build home?

Buying a new build has several benefits, such as:

  • You can save money on early repair costs as new builds tend to have lower maintenance.
  • New homes are usually more energy efficient than older homes.
  • There’s no upward chain with new builds, meaning you can move home at a suitable time.
  • You can usually customise the design of new builds to suit your needs, such as the layout and colour scheme.
  • Some developers may offer some fixtures and fittings for no extra cost.
  • If you’re buying off-plan, you can negotiate cheaper prices.

Are there any disadvantages of new build homes?

There are also disadvantages to buying a new build, such as:

  • New homes have a premium price tag as they’ve yet to be lived in.
  • Buying off-plan can result in development delays, which could cause issues if you need to move by a deadline.
  • You risk losing reservation fees if you withdraw from buying.
  • Mortgage assessments tend to be more strict for applicants buying new builds.
  • New builds often have snagging issues. While your warranty should cover snagging problems, they can be troublesome and timely to fix.
  • Lenders may charge higher interest rates for new builds, as they’re considered a higher risk than older properties.

Is it hard to get a mortgage on a new build?

It can be harder to get a mortgage on a new build compared to an older property. Lenders typically view new homes as a higher mortgage risk as house prices are more likely to fall than older properties. As a result, you may need a higher deposit than usual, such as 15-25%.

Surveyors use comparable data, such as sold prices, as part of a property valuation to justify the value of a mortgage. As new builds won’t have a history of property values, lenders take more risk as house prices for new builds are yet to be established.

Which new build warranties do mortgage lenders accept?

An NHBC Buildmark is one type of warranty, but lenders accept others. Nonetheless, you will need a warranty from your developer to get a mortgage. Most lenders accept the following warranty providers:

  • NHBC
  • BLP Secure
  • Premier Guarantee
  • Buildzone
  • Q Policy
  • Protek
  • Castle 10
  • ICW
  • LABC
  • One Guarantee
  • Ark Insurance Group Limited

How to get a new build mortgage

To get a new build mortgage, you’ll need to take the following steps:

  1. Check your affordability – Mortgage advisors can check how much you can borrow and the deals you’re eligible for. You can also apply for an agreement in principle (AIP) to check your affordability.
  2. Begin your property search – You can search online and visit development sites for properties suited to your budget.
  3. Check that your new build warranty is valid. Lenders accept different warranties, so check whether your warranty is acceptable.
  4. Pay a reservation fee to your developer – Reservation fees are typically non-refundable. Once paid, your developer should give you a reservation form, which you can provide to your mortgage advisor. Deadlines often start when you pay your reservation fee unless you buy off-plan.
  5. Apply for a mortgage – This will be a formal mortgage application, so you’ll need to provide proof of income and identity to your advisor.
  6. Receive your mortgage offer – Once your lender has completed a mortgage survey and approved your application, you’ll be ready to start the legal procedure to become a homeowner.
  7. Appoint a conveyancer – You’ll need a property conveyancer to ensure all the legal aspects of homebuying are covered.

Frequently asked questions

Some property developers will require you to complete your purchase within a specific timeframe. You may only have 28 days from when you initially paid your holding fee, but each developer varies.

Meeting tight deadlines can be difficult, so you should arrange your mortgage before paying developers any fees, as lenders can take up to four weeks to complete your assessment.

Developers may offer incentives to entice buyers. Although this sounds great, incentives can affect your mortgage.

If the value of incentives is less than 5% of the property value, it’s rarely a problem. However, if incentives are above 5%, your loan-to-value can increase. A higher LTV often means higher interest rates, so you’ll need to calculate whether an incentive is worth having.

Developers may offer incentives such as:

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

You’ll need a 15% deposit for a new build mortgage, but other lenders may require a 20-25% deposit.

If you’re using a government scheme, you may be able to get a mortgage with a 5% deposit, but fewer lenders are offering these.

You can get a buy to let mortgage on a new build, but you’ll likely need a 35% deposit, and interest rates are usually higher.

You’ll also need to be an existing homeowner and ensure the rent is high enough to pay your mortgage.

About the author

Martin Alexander
Senior Mortgage Advisor

Martin is a senior mortgage advisor who has held a CeMAP qualification for over 15 years while completing an MBA in Global Banking and Finance.