A New Build Mortgage is for a property that is completely new. It has no previous owners or occupiers. It can be a flat or a house. However, some lenders will accept conversions and refurbishments within the past 2 years.
Lenders often require a larger deposit amount for Newly built homes. This is because the premium paid for a new build can often be over the market value. That brings risk to the lenders as after purchase, the value of the home may drop to correct the inflated price.
Generally, most lenders state that 15% is required, however, that is not always the case.
Sometimes there are new home schemes that allow you to purchase with a smaller Mortgage deposit. This includes the government schemes that run, such as help to buy. Although this has stopped taking further applications from 31st October 2022, a new scheme is expected to replace it.
There are also a few lenders who have begun to offer Mortgages with just 5% deposits on new-build houses, alongside 10% Mortgage deposits for newly built flats. It is not uncommon for the deposit requirements to vary between property types.
If you are buying a new-build home, there are specialist mortgage advisers who work with the lenders who offer deposits at this level. If 5% is the deposit amount you have available, you may spend some time trying to find the right mortgage for you. Speaking with a Mortgage adviser should save you time hunting for a lender who can assist you.
Mostly, the process is similar to buying an existing house. There are a few differences you should be aware of.
If you are searching for properties, you may be asked to pay a deposit, also known as a Reservation Fee, by the developer to secure the home. If you pull out of the purchase, you may lose this fee.
When looking at properties that aren't new builds, you tend to look in your local area and take note of estate agent signs in the front garden, you may use an application like Rightmove, Zoopla, or Purple Bricks. You decide on the amount you are willing to offer and you submit your bid to the agent. New build properties work slightly differently, mainly because the exact plot you are looking at might not be ready for viewing.
Instead, you visit a showhome, a showhome is usually a replica flat, or house, designed and laid out in the same sizes and layout as some of the properties on offer. This won't always be a replica of the property you are looking for though. Most showhomes showcase three-bedroom properties. It gives the viewer a sense of space that may not be the same as a one-bed flat on offer. You will need to use your imagination and try to be realistic to avoid disappointment.
If you are still happy, you proceed to review the available plots. The agent will show you a site map of all of the units available in the development. You will see exactly where the plot will be based, and whether individual plots carry different prices. The price is normally fixed.
Should you decide you have found the plot of your dreams - you can pay a deposit to hold the plot. This is the new build equivalent of having an offer accepted. This is known as purchasing "off-plan".
The deposit amounts do come off of the final purchase amount, but it is an extra cost to raise upfront. Plot deposits can be around £1,000.
Now you have found your plot, you need to instruct your Mortgage adviser. Be aware that you are not required to use an in-house mortgage adviser provided by the development site. For Mortgage purposes, you will still need a property valuation. How can this be completed if the property doesn't yet exist?
Your mortgage adviser will instruct a surveyor to visit the site. The surveyor will request a copy of the fully completed UK Finance Disclosure Form from the sales team, along with floor plans for the property and confirmation of the property’s position and surroundings within the development. The Valuer will also request details of comparable on-site sales transactions as part of the wider valuation process. Should the property be ready for viewing, then normal surveying methods will be undertaken.
There is (very) rarely a scenario where your mortgage provider may have already helped a few clients looking at the same development. Particularly for flats, if this is the case, the lender may have set a limit to the maximum amount of lending exposure against a development or block of flats. Your Mortgage adviser should hear back quickly if this is the case, but you will need to find a new lender.
You would have by now probably seen a few of your friends sharing pictures on Instagram of them in their hard hats visiting development sites... Site visits are possible and yes you should. Speak to the developer to see how you can arrange a visit. This is part of the excitement of buying a new build property after all.
A shared ownership scheme is where you only purchase a share of a property, you live in the property and pay rent on the remaining share. When you are able to, you can continue to 'Staircase' and buy the remaining shares. Key features:
A developer will make it clear that properties are available for shared ownership. It is normally flagged as a scheme on property apps like Rightmove.
You will need to notify your mortgage adviser, to see how your AIP will change if you are looking at shared ownership. Your loan amount agreed may become less with shared ownership as you need to declare the rent as an expense in your affordability assessment.
When considering purchasing a new build home and securing a mortgage, it is crucial to seek professional advice. Consulting with a mortgage adviser who specialises in new build properties can provide valuable insights into the process. They can guide you through the intricacies of financing a new build, explain the various mortgage options available, and help you navigate the complexities of the application process. Their expertise can ensure you make informed decisions, understand the terms and conditions, and ultimately secure the most suitable mortgage for your new build home.
The Help to Buy scheme offers an equity loan where the government lends first-time buyers in England money to buy a new build house.
This must be used to buy your main residence and can’t be used to buy a second home or a buy-to-let property.
You need to raise a deposit of at least 5% of the purchase price.
Then you can borrow 20% (40% in London) of the purchase price. This equity loan is interest-free for five years.
When the interest-free period ends, the interest rates charged on your loan will go up each year in April by the Consumer
Price Index (CPI), plus 2%.
Years 1-5: no fees
Year 6: 1.75% of the loan
Year 7 onwards: 1.75% + CPI + 2% (1% if you took the equity loan before December 2019).
You will also pay a £1 monthly management fee by direct debit. When you take out your equity loan, you agree to repay it in
full, plus interest and management fees.
When you sell your home, or the mortgage is paid off, you have to repay the equity loan plus a share of any increase in the value.
The help to buy equity loan scheme stopped taking new applications on 31/10/22. There is not currently a replacement lined up.
You purchase a share of the new-build home and pay rent on the remaining part. You can purchase between 25% and 75% of the property. You only pay a deposit based on the share you are buying.
Only houses that have purposefully been built for shared ownership can be purchased using the scheme and you’ll be a leaseholder, not a freeholder. This means that after a set period of time, the lease will revert back to the freeholder, this is usually 999 years.
The surveyor will visit the site. Once there, they will request access to the property being valued. If possible, the property will be fully inspected as per the usual residential inspection methods.
The surveyor will also request a copy of the fully completed UK Finance Disclosure Form from the sales team along with floor plans for the property and confirmation of the property’s position and surroundings within the development. The valuer will also request details of comparable on-site sales transactions as part of the wider valuation process.
Yes, you can. This is done using a new-build mortgage. If you’re buying off plan, make sure you’re aware of what’s included in the price. This could be anything from white goods to a parking space
Forces Help to Buy is a scheme that helps armed forces personnel get on the property ladder by enabling them to borrow up to 50% of their salary from HM Forces towards a deposit to buy their first home, or move to another property. This is all interest-free. If you’re part of the armed forces. New builds are eligible for this scheme.
Yes, structural warranties can affect mortgage applications. Most lenders will require a structural warranty for a new build home to protect themselves and the funds they have put into the property. Different lenders accept different providers of Warranty. It's important to check upfront when purchasing a property what warranty is available.