What are new build mortgages and how do they work?
A new build home is one that has either not been built yet or has not been lived in by anyone.
The mortgage process itself is largely the same as with an older property, however, some of the criteria varies and the products on offer can be different.
There are also affordable housing government initiatives to help buyers onto the property ladder that are exclusively available on new build properties.
What are the pros and cons of a new build home?
Pro’s of a new build home
- Modern amenities: New build homes often come with the latest features, fixtures, and technologies, offering modern living spaces and energy-efficient designs.
- Customisation: Depending on the stage of construction, you may have the opportunity to choose finishes, layouts, and certain design elements, allowing you to personalise the property to some extent.
- Warranty and guarantees: New build homes typically come with builder warranties and guarantees, providing peace of mind and protection against structural defects and issues that may arise within a specified period.
- Energy efficiency: New builds are often constructed with energy-saving features and materials, such as improved insulation, efficient heating systems, and double-glazed windows, which can result in lower utility bills.
Con’s of a new build home
- Potential delays: Construction timelines can be subject to delays due to weather conditions, planning permission issues, or other unforeseen circumstances, which may disrupt your moving plans.
- Limited character: New build homes may lack the unique architectural character and charm of older properties. The designs can sometimes appear similar, reflecting a more standardised aesthetic.
- Developing area: New build developments are often located in emerging areas where infrastructure, amenities, and services may still be under development. This could mean limited amenities and a lack of established community facilities.
- Pricing: New build homes tend to have a premium price compared to older properties, partly due to the inclusion of modern features and the cost of new
- construction. This can make them less affordable for some buyers.
Speak To an Expert
Whether you’ve just had an offer accepted on a property and you’re ready to go, or you’re simply wondering how much you need to save for a deposit, it’s never too soon to reach out.
What deposit do I need and how much can I borrow for a new build mortgages?
Mortgage lenders often require larger deposits on new build properties, this is to cover themselves from price fluctuations in the early years. The deposit amount required will vary between lenders. Nationwide for example, require a 25% deposit on new build flat’s and 15% on new build houses, however there are lenders that accept smaller deposits.
There are some schemes available that allow you to purchase a new build with a smaller deposit. The deposit unlock scheme allows you to purchase one with a 5% deposit if you purchase a home through a builder that is a participant in the scheme.
The amount you can borrow will depend on your own individual circumstances, as a rule of thumb lenders will consider between 4.5 – 5 times your income. If you are purchasing s property using one of the governments affordable housing scheme you will be restricted to borrowing no more than 4.5 times your income.
What is the new build mortgages process?
The new build buying process typically involves the following steps:
- Speak to a mortgage broker: Consulting with a mortgage broker like Strive will help you assess your budget and obtain an Agreement in Principle (AIP) or Mortgage Promise, which confirms the amount you can borrow.
- View properties and make an offer: Once you have an idea of your budget, you can visit new build developments and view the available properties. If you find a suitable property, you can make an offer to the developer or their sales agent.
- Reservation fee: Upon agreeing to purchase a new build property, developers typically require a reservation fee to secure the plot. This fee can range from around £500 to several thousand pounds and is usually non-refundable.
- Mortgage application and legal work: After reserving the property, you can proceed with the mortgage application process. You’ll need to provide the necessary documentation to support your application. Simultaneously, you should appoint a solicitor or conveyancer to handle the legal aspects of the purchase.
- Exchange of contracts: Most new build developers aim for a 28-day exchange period. During this time, your solicitor will carry out various searches and inquiries to ensure there are no legal or structural issues with the property. Once both parties are satisfied, contracts are exchanged, and you become legally committed to the purchase.
- Completion and handover: After the exchange of contracts, the developer will set a completion date. On the completion day, you’ll finalize the purchase, settle the remaining balance, and receive the keys to your new build property.
What is shared ownership?
Shared ownership gives buyers the opportunity to purchase a share in a property, this is not exclusively available to new build properties and are available on some resales. The buyer’s share is made up by a mortgage and deposit and the remainder of the share is retained by the housing association to whom they pay subsidised rent.
Buyers can purchase as little as 25% of the property value and have the opportunity to increase their stake in the property via a process called staircasing and in most cases staircase all the way to 100% of the property.
The deposit required is based on the share price, not the full market value and a deposit of 5-10% can be acceptable. The subsidised rent is charged at 2.75% per annum of the property value (Of the share retained by the housing association)
There are some eligibility requirements, applicants that live outside London must have an annual household income less than £80,000 or £90,000 if you live in London.
What is the First Homes Scheme?
The First Homes scheme is a government initiative in the United Kingdom aimed at helping first-time buyers onto the property ladder. It offers discounted homes to eligible individuals or families who meet specific criteria. The scheme provides newly-built properties at a discount of at least 30% of their market value, allowing first-time buyers to purchase homes at a more affordable price.
The First Homes scheme aims to prioritise key workers, such as military personnel, healthcare professionals, and teachers, as well as local residents in the community where the homes are located. The discounted price remains with the property, ensuring that future buyers also benefit from the discount when the property is sold.
The scheme is intended to support home ownership by reducing the upfront costs for first-time buyers and making homes more accessible. Eligibility criteria and other details of the scheme can vary, so it’s advisable to consult with local authorities or housing providers for specific information and to determine if you qualify.
How can Strive Mortgages help?
Working with a mortgage broker like Strive Mortgages when buying a new build home can make help improve your chances of finding the best deal and having success with your mortgage. Get in touch with us today.
- Finding the Best Lender: A broker has access to a wide range of lenders and can help you identify those that offer new build mortgages with favorable terms, such as competitive interest rates and flexible criteria.
- Explaining New Build Schemes: New build properties often come with various schemes, such as Help to Buy or Shared Ownership. A mortgage broker can explain these schemes, their eligibility criteria, and how they can impact your mortgage options.
- Assisting with Paperwork: Applying for a mortgage involves significant paperwork. A broker can help you navigate the documentation requirements, gather the necessary information, and ensure everything is properly completed.
- Saving Time and Reducing Stress: By handling the research, paperwork, and communication with lenders on your behalf, a broker can save you time and alleviate the stress associated with the mortgage application process.
Frequently asked questions about new build mortgages
Yes, it is possible to obtain a buy-to-let mortgage on a new build property. However, lenders typically require a minimum deposit of 25% for buy-to-let mortgages. In some cases, especially for new build flats, lenders may ask for larger deposits, such as 35% or higher. The specific deposit requirements can vary among lenders and depend on factors such as the property type, location, and the lender’s risk assessment. Consulting with mortgage brokers or lenders specializing in buy-to-let mortgages will help you navigate the options and determine the deposit requirements for a new build buy-to-let property.
Many lenders offer new build mortgages, although their criteria and deposit requirements can vary. It’s important to research and compare different lenders to find those with more favourable terms and potentially lower deposit requirements for financing a new build property.
While it is possible to secure a new build mortgage with a 10% deposit, it is important to note that most lenders may require a larger deposit. Obtaining a new build mortgage with a 10% deposit can be particularly challenging for new build flats. It is advisable to explore different lenders and their specific criteria to find options that accommodate a 10% deposit for new build properties.
Developed by the Home Builders Federation, this scheme helps both first time buyers and home movers buy a new build home with a deposit of just 5%. It’s going someway to filling the gap left by the government’s Help to Buy scheme, which is now closed to new applicants.
Developed by the Home Builders Federation, this scheme helps both first time buyers and home movers buy a new build home with a deposit of just 5%. It’s going someway to filling the gap left by the government’s Help to Buy scheme, which is now closed to new applicants.
