New Build Mortgages
New Build MortgagesMarcus Rowland and Tom Butcher answer the most frequently-Googled questions on new build mortgages.
Is it hard to get a mortgage for a new build property?It can seem harder to get a mortgage for new build properties. Mortgage lenders can be strict on how much they’re willing to lend against new builds, to protect themselves from any potential devaluation of the property in the early years. If you’re considering buying a new build, speak to a mortgage broker like ourselves. We can work out how much you can afford and what it will cost – and we’ll also see if you’re eligible for any home buying scheme such as Help to Buy. If you’re buying a new build property you need a mortgage that can potentially withstand a long delay between the potential exchange and completion date. A lender who will offer you extensions on your mortgage offer is really helpful. Otherwise, you run the risk of the mortgage offer running out before the home is ready.
What is the new build mortgage process?First, check that you’re eligible for a mortgage and how much money you can borrow. It’s good to have a mortgage Decision in Principle at the outset. That way you know there are no hidden credit issues or anything that could cause a problem. You don’t want to start looking for a house, put a deposit down and then find that you can’t borrow the money. Once you’ve found a property you can negotiate the price and any incentives with the builder. It’s worth checking back with the mortgage broker to make sure you can afford the final price before you go ahead. Once your reservation fee is paid your mortgage broker will start looking for the most suitable mortgage for you. Next we help you with the full application and you supply documentation such as proof of income and ID. Your brokers should also be able to help you appoint solicitors to conduct the legal work as part of your new build purchase. Lastly, once the lender has issued a mortgage offer you’ll be ready to exchange, pay your deposit and agree a completion date.
How long does the new build application process take?It’s not much different to a normal mortgage application. You would expect to receive a mortgage offer usually within four weeks of the application. That’s dependent on a couple of factors – when the valuation can be carried out by the lender and whether it’s a complicated application. A big one at the moment, too, is how busy the mortgage lenders are – that can affect how quickly they can turn around applications and assess documentation.
What deposit do I need and how much can I borrow for a new build mortgage?There are a lot of lenders who will consider a 5% deposit. If it’s a new build flat then usually 10% would be required. With the Help to Buy schemes generally you only need 5% too. Your salary will have a big impact on what you can borrow. So usually banks and building societies will offer up to 4.5 times the combined annual income of you and whoever you’re buying the property with. There are some exceptions, however. Some banks will offer bigger home loans to borrowers with higher earnings and bigger deposits. It can also help if you work in specific professions or for the NHS where you may be able to borrow up to 5.5 times your income. Again, speak to your broker to explore the options from different lenders.
Are there any other incentives available when it comes to getting a new build mortgage?There are a lot of developers that will offer incentives to tempt buyers in. They may cover your stamp duty or legal fees. But lenders will take this into account in considering how much to lend you. It could reduce the amount you can borrow if the incentive is worth a significant amount – for example, if it’s more than 5% of the value of the property. This could affect the mortgage rates and the Loan to Value – how much you’re borrowing in relation to how much the property is worth. We’ll be able to advise on any potential impact of buyer incentives on your mortgage before you go ahead.
How does the Help to Buy Scheme work?With Help to Buy the buyer puts in a minimum 5% deposit and receives the Help to Buy equity loan – which is 20% of the property value. It means that buyers only have to take out a mortgage for 75%. The thing to bear in mind here though is that it is ending in March 2023. First Time Buyers who want to take advantage of the scheme need to have reserved a property by the end of October this year.
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What is the Deposit Unlock Scheme?
This is a scheme devised in collaboration with lenders and the house building industry. It enables First Time Buyers and existing homeowners to purchase a new build home with just 5% deposit. It also provides customers with competitively priced mortgage products up to £750,000 and makes buying a home a bit more affordable.
The scheme is exclusively available on selected new build homes. It’s definitely something that buyers can look into as an option.
What is shared ownership?
This is an affordable home ownership scheme where the applicant purchases a share of a brand new property. They rent the remaining share from the local housing association who sets the schemes up.
The prices advertised for the new build shows the minimum shares available – you can purchase varying percentages of the property value depending on what you’re eligible to borrow and your deposit.
What is a Joint Borrower Sole Proprietor (JBSP) mortgage?
As the name suggests, it allows multiple borrowers to contribute to repaying a mortgage, but not all names will be on the property deeds. To give you an example, I’m currently helping a First Time Buyer who wouldn’t be able to afford the property he’s buying on his sole income.
Using this scheme, his mother has kindly agreed to put forward a pension income as part of the application. That’s allowed him to purchase a property which is big enough so that his son can come and stay. JBSP gives people a foot on the ladder that potentially they wouldn’t have had on their own.
What are the pros of buying a new build property?
New build properties really appeal to people because they’re brand new. They come with warranties, such as the National Housebuilding Council 10 year certificate, which protects the buyer if there were any major defects in any of the building work.
Typically you can choose your own fixtures, fittings and finishes such as tiling and carpets. You can pick out your kitchen and bathroom. Also, as we previously discussed, the home could be eligible for the Help to Buy scheme, making it more affordable.
Another advantage is that you’re not involved in a chain when buying the property. As soon as the home is built you can move, which can take a lot of the stress out of the moving process.
Something which is very relevant at the moment is that new builds are typically more energy efficient than older properties, so you should save money on gas and electricity bills.
What are the cons of buying a new build property?
New build property tends to be a bit more expensive – which is often referred to as the new build premium. So if you are considering buying a new build, it’s a good idea to stay there for a few years in case there’s an initial devaluation of the property. There’s not much leeway if the housing market falls slightly.
With a new build, everything is generally done to a good standard, so when you move in it’s difficult to add any value yourself – as you could with an older ‘doer-upper’. With new property you often need to put a reservation fee down, which is an additional cost that you don’t have when buying an older property.
If you’re buying a new build property off plan, there’s always a chance that construction gets delayed. You may not move into the property on the date you planned, which could mean having to pay rent or storage costs for possessions and furniture that you would have ideally have been moving into the new property. So there are a few things to consider, but hopefully nothing that would put people off.
How can a mortgage broker help?
Talking to somebody like ourselves can take the risk away. It means you don’t have to worry about getting it wrong or trying to do things yourself.
Plus, we will hopefully save you some money by finding the most suitable deal and making it as cost effective as we can.
Your home may be repossessed if you do not keep up with your mortgage repayments.
The Financial Conduct Authority does not regulate some Buy to Let Mortgages.