Last Updated on 18th October 2020
Buying a new build home can be an exciting time, but finding a mortgage to go with it can seem confusing. With the right advice and a watertight application, getting a mortgage for a new build home can be quite simple.
New build homes have become increasingly popular. Although they tend to be more expensive than older properties, you can save money on early repair costs.
New homes are built to be energy efficient and most developers will allow you to customise your home. Buying a newly built home also means that they’ll be no upward chain.
Mortgages for new builds aren’t that different from regular mortgages. That said, there are a few pitfalls to be aware of which we’ll explain in this guide.
It’s also important to mention that developers may have timeframes that they’d like you to work towards. For instance, some developers require completion of purchases within 28 days. Having a mortgage in place is essential for ensuring you can meet such deadlines.
If you have any questions or need to get your mortgage underway, you can speak to our advisors at any time.
Will I need a new build mortgage lender?
Mortgage lenders don’t have specific deals solely for new build properties. Whether the property is old or new, the mortgage deals you’ll be eligible for will be the same. That being said, lenders do treat new build mortgage applications in a different way to regular applications.
Lenders tend to be less flexible where new builds are involved. This is mainly because of the volatility of new build property values. History has shown us that although property values can fall, they do eventually rise. Twenty years from now, a property will probably be worth more than it is today. Nonetheless, lenders need to think both short-term and long-term.
New build properties can lose some value once they’re initially purchased. As a result, lenders tend to want higher deposits when compared to mortgages for older homes. Most lenders will only offer 75% LTV as a maximum whereas a handful of lenders may go as high as 95% LTV. Furthermore, if you’re wanting to get a buy to let mortgage on a new build, it’s likely you’ll need a deposit of 35% as a minimum.
To summarise, there aren’t specific lenders for new build homes. Nonetheless, it pays to find the right lender suited to your circumstances. If you have a small deposit such as 5%, you can look into purchasing your new build through a Help to Buy scheme.
Buying 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, purchasing a new build off-plan isn’t uncommon. That being said, 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.
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.
On the other hand, 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 need to borrow.
Any changes need to be made clear to the lender before completion. For instance, if house values drop quite considerably, lenders can withdraw which may leave you with a shortfall.
Developers tend to charge reservation fees. Withdrawing from purchase 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 find you the best possible deals you qualify for and also help you avoid potential problems.
Incentives from developers
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. On the other hand, 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.
Incentives can include:
- Covering the cost of legal fees
- Payment of stamp duty
- Deposit contributions
Some developers may also throw in additional upgrades on the new build. This can include packages for premium kitchens, bathrooms and home furniture. Incentives can be great but do keep your mortgage in mind.
National House Building Council (NHBC) Buildmark
New build properties should come with a National House Building Council (NHBC) Buildmark. The Buildmark certificate guarantees the build for ten years so it’s very important you receive this.
New build properties often have snagging issues in the early years. As a result, lenders will insist that a guarantee such as the NHBC Buildmark is provided. Without a recognised guarantee, lenders may withdraw from the mortgage.
If you’re unsure of whether or not your new build is guaranteed, speak to your developer. Your conveyancer should also have a copy of the guarantee so they can check its validity.
You can find more information about the NHBC Buildmark here.
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 a lot of money. Why would you choose to pay a high mortgage rate, when you can pay less? It simply doesn’t make sense.
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 could result in your sale falling through.
Our advisors are experienced in securing mortgages for new build homes. You can speak to an advisor by making an enquiry below.