Mortgages for new build properties

Embarking on the journey of homeownership can be an exciting yet complex process, particularly when it involves new build homes. A critical aspect of this process is understanding “Mortgages for New Build Homes”. This comprehensive guide is designed to illuminate the unique aspects and requirements that accompany securing a mortgage for a new build property, often referred to as “new build mortgages”. From understanding the application process, and assessing lender criteria, to comprehending the financial commitments involved, we aim to provide a wealth of information that empowers you to navigate the path of new build homeownership with confidence.

This guide is here to answer your questions, break down complex terms, and shed light on the unique aspects of new build mortgages. Whether you are a seasoned investor or stepping into the world of homeownership for the first time, we aim to make the journey of acquiring mortgages for new build homes clearer and more straightforward.

What is a new build home mortgage?

A new build home mortgage is a home loan specifically designed for purchasing new build properties. These properties are brand-new homes or ones that have been recently built and not yet occupied. These types of mortgages can sometimes come with certain benefits or requirements that differ from mortgages for older properties.

Lenders may offer specific incentives to promote the purchase of new build homes. For example, developers may offer schemes like Help to Buy, Shared Ownership, or Part Exchange, which can assist buyers in getting onto the property ladder. Some mortgage products may even have lower interest rates or special terms for new builds.

What is a new build property?

A new build property refers to a residential property that has been recently constructed and has not been lived in by a tenant or a homeowner. These properties are usually sold directly by housing developers and may be part of larger projects that include multiple homes, apartment complexes, or entire neighbourhoods.

New build properties can range from single-family detached homes to townhouses, condominiums, and apartment units. They are typically equipped with modern fixtures, fittings, and facilities and built to meet current building regulations and standards.

One of the major benefits of new build properties is that they often come with a warranty, such as a 10-year warranty and insurance protection from the National House Building Council (NHBC) in the UK, which provides some degree of protection for the buyer against structural defects.

In some cases, a property that is being sold off-plan, meaning before it is fully constructed, can also be referred to as a new build property. In these situations, potential buyers will often make their purchase decisions based on architectural drawings and plans, as well as show homes that represent the final appearance and layout of the property.

Advantages of buying a new build home

Buying a new build home can offer several benefits:

1. Modern Design and Specifications: New builds are designed to meet current standards and trends, including energy efficiency and modern architectural styles. They often come equipped with the latest amenities and appliances, ensuring a contemporary lifestyle for the occupants.
2. Energy Efficiency: New builds tend to be more energy-efficient than older homes due to better insulation, modern windows, and efficient heating systems. This can save homeowners money on energy bills and reduce their carbon footprint.
3. Lower Maintenance and Repair Costs: Since everything in the house is new and unused, maintenance and repair costs are often significantly lower in the first few years compared to older homes.
4. Warranty: Most new builds come with a warranty, such as the 10-year warranty provided by the National House Building Council (NHBC) in the UK. This offers protection against major structural defects and provides peace of mind to the buyers.
5. Customisation Options: If you’re buying off-plan, you might have the opportunity to make decisions on fixtures, fittings, and finishes, allowing you to tailor the property to your tastes.
6. Incentives: New build homes often come with incentives from developers, such as paying your stamp duty or providing upgrades at no extra cost. Plus, government schemes like Help to Buy are often applicable to new build properties.
7. Safety: New builds must comply with current building and safety regulations. They typically have modern fire safety features, electrical systems, and security measures.
8. Chain Free: When you buy a new build home, you’re not part of a property chain, reducing the risk of your purchase falling through due to issues elsewhere in the chain.

Disadvantages of buying new build homes

While new build homes offer many advantages, they also come with potential drawbacks:

1. Delays in Construction: New build homes can be subject to delays in construction due to various reasons, like weather conditions, supply chain issues, or logistical complications. This could mean waiting longer to move in than originally planned.
2. Size of Rooms: Sometimes new build homes have smaller rooms compared to older properties. This can especially be the case in new apartments and townhouses, where maximising the number of homes in development can lead to reduced space.
3. Limited Negotiation Room: Developers tend to set the prices for new build properties and might not be willing to negotiate as much as a regular home seller.
4. New Community: If you’re one of the first to move into a new development, it might take some time before the community atmosphere fully develops.
5. Teething Problems: Like any new product, a new home may come with “teething problems”. These might include issues with plumbing, electrics, or general building work which need to be resolved.
6. Lack of Character: Some people find that new build homes lack the character and unique features that older properties often have. New builds can sometimes be very similar in appearance, resulting in a lack of individuality.
7. Depreciation: Much like a new car, a new build house can depreciate as soon as you buy it. If the housing market slows down, you might find the value of your property drops below the price you paid for it.
8. Snagging Issues: These are minor issues that need fixing after you move into a new build home, like doors not closing properly or paint touch-ups needed. Some developers are better than others at fixing these quickly.
9. Uncertain Future Development: If your new build is part of a larger development that’s still under construction, you might have to tolerate ongoing construction noise and disruption for some time. There could also be uncertainty about what amenities or additional housing will be built nearby in the future.

It’s crucial to carefully weigh the potential benefits and drawbacks before deciding to purchase a new build home. Always consider having a professional snagging survey done before you complete your purchase to identify any issues that the developer should fix.

Can you get a 5% mortgage on a new build?

Yes, it is possible to get a mortgage with a 5% deposit (95% loan-to-value ratio) on a new build property in the UK, although the availability of such products can depend on the overall lending environment, the specific lender’s policies, and the buyer’s personal financial circumstances.

The UK government had introduced 95% of mortgages through a Mortgage Guarantee Scheme to help first-time buyers and existing homeowners secure a mortgage with just a 5% deposit. This scheme was applicable to both new build homes and existing properties.

However, it’s worth noting that not all lenders offer 95% mortgages for new build properties, and those that do might have stricter criteria due to the perceived higher risk compared to older properties. They may also potentially charge higher interest rates.

Do you need a mortgage when buying a new-build home?

Whether you need a mortgage when buying a new build home depends on your financial situation. A mortgage is essentially a loan that helps you spread the cost of purchasing a property over many years, which is particularly useful if you do not have the full purchase price readily available.

If you have enough funds to purchase the property outright, you would not need a mortgage. This is often referred to as buying a property “cash.” However, most people do not have this amount of cash on hand and will need to get a mortgage to buy a property, be it a new build or a pre-existing home.

Even if you do have the funds to purchase outright, you might still choose to get a mortgage. This might be because you believe your money could earn a higher return if invested elsewhere, or you prefer to keep some cash on hand for other purposes, such as renovations, emergencies, or other investments.

What deposit do you need for new build mortgages?

The deposit you need for a new build mortgage typically depends on the specific requirements of the mortgage lender and the type of loan. However, as a general rule, lenders usually require a deposit of between 5% and 20% of the property’s purchase price.

That said, new-build properties can sometimes have different requirements. Some lenders perceive new builds as higher risk, and therefore, they may ask for a larger deposit. For flats or apartments, it is not uncommon for lenders to require a deposit of 20% or more.

How fast can I get a new build mortgage?

The process of obtaining a new build mortgage can vary greatly in length depending on various factors, including the buyer’s financial status, the lender’s process, and the property’s construction status.

In general, getting a mortgage involves several steps:

1. Pre-Approval or Agreement in Principle (AIP): This can often be obtained within a few days or even hours. An Agreement in Principle provides an estimate of how much a lender may be willing to lend you based on an initial assessment of your financial circumstances.
2. Full Application: Once you’ve had an offer accepted on a property, you can proceed with the full mortgage application. This process includes a thorough assessment of your finances and could take anywhere from a few weeks to a couple of months, depending on the lender and whether any issues arise.
3. Mortgage Offer: If your application is approved, the lender will issue a mortgage offer. This typically occurs within a week or two after the lender has received and reviewed all necessary information and documents, including the property valuation.

For new build properties, the timeline can be slightly more complex. If the property is not yet built or completed (purchasing off-plan), the mortgage offer’s validity becomes crucial. Most lenders’ mortgage offers are typically valid for three to six months, but some lenders offer extended validity periods for new builds, recognising that completion dates can be unpredictable.

If the new build property will not be ready within the validity period of the mortgage offer, you may need to reapply. This is why communication with the builder and lender is crucial when buying a new build property.

In summary, it’s difficult to specify a precise timeline as it greatly depends on personal circumstances, the lender’s processes, and the property’s status. However, it’s safe to say that it could take anywhere from a few weeks to several months. Always consult with a mortgage advisor or broker to understand the specifics based on your situation.

Where can I get help to buy a new build property?

There are several places where you can get help to buy a new build property in the UK. Here are some key resources:

1. Help to Buy Scheme: This government-backed scheme is designed to assist people in buying new build homes. It provides an equity loan that covers a portion of the property price, allowing buyers to purchase with a smaller deposit and mortgage. The loan is interest-free for the first five years.
2. Shared Ownership: Under this scheme, you buy a share of a property and pay rent on the rest. Over time, you have the option to buy larger shares until you own the property outright. This can be a more affordable way to get onto the property ladder.
3. Mortgage Brokers/Advisors: These professionals can guide you through the process of getting a mortgage, helping you understand how much you can borrow, which lenders to approach, and how to navigate any challenges that arise.
4. Developers: Property developers often offer schemes and incentives to help buyers. These might include deposit contributions, upgraded fixtures and fittings, or even paying the buyer’s stamp duty.
5. Financial Advisor: A financial advisor can provide guidance on managing your finances and saving for a deposit. They can also help you understand the potential impacts of a property purchase on your overall financial situation.
6. Local Councils: Some local councils offer their own schemes to help local residents buy homes, such as providing loans for the deposit.
7. Lifetime ISA: The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year, if you’re saving towards your first home with a Lifetime ISA. This can significantly boost your deposit savings.
8. Online Resources: Websites like MoneySavingExpert and the Money Advice Service offer a wealth of information on buying a new build property and the schemes available to help.

Timescales for getting new build mortgages

Obtaining a new build mortgage can involve several steps, each with varying timescales. The entire process of applying for a mortgage and getting an offer can range from a few weeks to a few months. Here’s a general idea of the timescales involved:

1. Mortgage Pre-Approval/Agreement in Principle (AIP): This initial stage can usually be completed within a few hours to a couple of days. It involves a basic check of your income, expenditure, and credit score to give an estimate of how much you might be able to borrow.
2. Full Application and Assessment: Once you’ve chosen a property and had an offer accepted, you can proceed with the full mortgage application. This includes a more thorough assessment of your finances and can take a few weeks to a couple of months, depending on the lender and whether any issues arise, such as discrepancies in your financial information or problems identified during the property valuation.
3. Mortgage Offer: Once your application has been approved, the lender will issue a mortgage offer. This usually happens within a week or two after the lender has received and reviewed all necessary information and documents.

It’s important to note that these timescales can be significantly impacted by the specifics of buying a new build property. If the property is still under construction, there can be delays, and the mortgage offer’s expiry date becomes important. Mortgage offers are typically valid for three to six months, but some lenders may extend this for new builds.

If the construction of the new build property is not complete before the mortgage offer expires, you might have to go through the application process again, potentially facing changes in interest rates or even the risk of the lender changing their mind about the loan.

Communicating with your lender and the property developer throughout the process is crucial to avoid such problems. A mortgage advisor or broker can also help you navigate these complexities. Keep in mind that every buyer’s situation is unique, and actual timescales may vary.

New build mortgage offer periods

Mortgage offers generally have a validity period. For most properties, the typical validity period for a mortgage offer is around three to six months from the date of issue.

However, for new build homes which might still be under construction, this can present an issue. The time between the initial mortgage application and the completion of the property could potentially exceed the standard mortgage offer period. This is due to the fact that construction timelines can sometimes be delayed or unpredictable.

Recognising this issue, some lenders offer extended mortgage offer periods specifically for new build properties. These can often be for six months, and some lenders may extend this up to 12 months to accommodate potential construction delays. In some circumstances, lenders may also be willing to extend the offer even further if the construction is delayed beyond the initial offer period.

However, policies can vary greatly between different lenders, and it’s also worth noting that even with an extended offer, there may be conditions. For example, some lenders may recheck your financial circumstances before completion to ensure nothing has significantly changed.

Therefore, when purchasing a new build home, it’s important to discuss these issues with your mortgage broker or lender and understand the terms and conditions of the mortgage offer. This will help you avoid any potential problems down the line.

When do you start paying the mortgage on a new build?

For a new build property, you start paying the mortgage after the completion of the purchase, just like with any other type of property. The completion date is when the remaining funds are transferred from your mortgage lender to the seller (or the developer in the case of a new build), and you become the legal owner of the property.

This can work a bit differently if you’re buying a new build home that isn’t finished at the time of your purchase agreement. In such cases, the purchase might be completed in stages.

For example, you might be required to pay a deposit and exchange contracts before the property is finished. Then, when the property is ready, you’ll pay the remaining balance (via your mortgage) on what’s often referred to as the ‘completion date’.

Your first mortgage payment is typically due one month after the completion date. However, depending on the timing, your first payment might be a ‘double payment’ – covering the fraction of the month when you completed it, plus the month after. Your lender should provide you with details about when your first payment will be due and how much it will be.

Remember to budget for this first mortgage payment in your moving expenses, as well as other potential costs like furnishings, moving costs, and any immediate modifications or repairs you want to make to the property.

Mortgage lender criteria is stricter for new builds

Mortgage lenders can indeed have stricter criteria for new build properties compared to older or pre-owned homes. This is because lenders may see new builds as a slightly higher risk for a few reasons:

1. Valuation Uncertainties: New build properties, especially those bought off-plan (before they are built), can be tricky to value. If the housing market declines, the property might not be worth as much as expected once it’s finished.
2. New Build Premium: New properties often come with a ‘new build premium’, meaning they’re priced higher than comparable existing properties. This premium can diminish over time, meaning the property might not hold its value as well as older property.
3. Construction Delays: If there are delays in the construction process, it could affect the timing of the mortgage and the validity of the initial offer.

As a result of these potential issues, lenders may have specific criteria for new build mortgages, such as:

Higher Deposit Requirements: Lenders may require a larger deposit for new builds compared to existing properties. It’s common for lenders to ask for a deposit of 15-20% of the purchase price for new build properties.

Lower Loan-to-Value (LTV) Ratios: Related to the point above, lenders may offer a lower maximum LTV ratio for new build properties.

Property Specifications: Some lenders have specifications about the type of new build properties they’ll lend on. For example, they might not lend on high-rise flats or properties of non-standard construction.

Mortgage Offer Validity: While mortgage offers are typically valid for 3-6 months, some lenders may extend this for new builds due to potential construction delays. However, they may also want to revalue the property or reassess your financial circumstances before completion.

What kind of deposit do you need?

The deposit required for a mortgage can vary depending on several factors, including the mortgage product, the lender’s policies, and the buyer’s personal circumstances. In the UK, the deposit is usually expressed as a percentage of the property’s purchase price and typically ranges from 5% to 20%.

Here are some general guidelines:

1. Standard Residential Mortgages: For most residential properties, you will typically need a deposit of at least 5% to 10% of the property’s value. However, the more you can put down as a deposit, the better mortgage terms you are likely to get. Larger deposits can lead to lower interest rates and lower monthly repayments because they reduce the lender’s risk.
2. New Build Properties: For new build homes, lenders sometimes require a larger deposit, often around 15% to 20% of the property’s price. This is because some lenders perceive new builds as higher risk due to factors like potential construction delays or the new build premium, which could cause the property to depreciate faster initially.
3. Buy-to-Let Mortgages: If you’re buying a property to rent it out, you’ll usually need a larger deposit compared to a standard residential mortgage. This is typically at least 25% of the property’s value.
4. Government Schemes: If you’re using a government scheme like the Help to Buy Equity Loan, you may be able to provide a smaller deposit. The scheme requires a minimum deposit of 5%, with the government providing an equity loan for a further portion of the property’s price.

Check for the National House Building Council (NHBC) ‘s Buildmark

The National House Building Council (NHBC) ‘s Buildmark is a warranty and insurance product provided by the NHBC for new and newly converted homes in the UK. It aims to protect homeowners from potential problems related to the construction of their property.

Here’s what the NHBC’s Buildmark warranty generally covers:

1. Pre-completion Insolvency Protection: If the builder or developer goes insolvent before the property is completed, the NHBC provides protection to ensure you don’t lose your deposit and can recover additional expenses.
2. Initial Warranty: For the first two years after completion, the builder is responsible for fixing any defects that don’t meet the NHBC standards. If the builder fails to do this, the NHBC can step in.
3. Structural and Weatherproofing Damage Warranty: From years 3 to 10, the NHBC warranty covers any damage to specific parts of the home and any issues that make the home uninhabitable. These include problems with the structure of the home (e.g., foundations, walls, and roofs) and weatherproofing issues (e.g., keeping out wind and rain).
4. Contaminated Land Cover: The NHBC provides coverage for clean-up costs if the land the home is built on is contaminated.

It’s important to note that the Buildmark warranty doesn’t cover everything. For instance, it doesn’t cover general wear and tear, weather damage, or any issues resulting from not maintaining the property. Each Buildmark policy may vary, so you should check the policy documents to understand exactly what is covered.

To check whether a property has NHBC’s Buildmark cover, you can ask the builder or developer, who should provide you with a Buildmark cover note. Alternatively, you can contact the NHBC directly. Keep in mind that other warranty and insurance providers also exist, so a home might be covered even if it doesn’t have the NHBC’s Buildmark.

What is the process for a new build mortgage?

Getting a mortgage for a new build property involves a series of steps, some of which can be unique to new builds. Here’s a general overview of the process:

1. Budgeting: Figure out how much you can afford to borrow and repay, taking into account the costs of owning a home, such as insurance, maintenance, and council tax.
2. Mortgage Agreement in Principle: Before you start house hunting seriously, it can be helpful to get a mortgage agreement in principle (AIP). This is a document from a lender stating how much they might be willing to lend you. It’s not a guarantee, but it can make you a more attractive buyer.
3. Reservation: Once you’ve chosen a new build property, you’ll typically need to pay a reservation fee to secure it. This fee is typically deducted from the purchase price upon completion.
4. Application: With the reservation secured and a full understanding of the cost, you can make a full mortgage application. You’ll need to provide detailed information about your income, expenses, and any outstanding debts. The lender will conduct a thorough credit check.
5. Valuation: The mortgage lender will conduct a valuation to ensure the property is worth the price you’re paying. With new builds, the valuation might be based on the developer’s plans and specifications if the property isn’t built yet.
6. Mortgage Offer: If your application and the property valuation are satisfactory, the lender will offer you a mortgage. This document will detail the terms of your mortgage, including the interest rate, repayment schedule, and any conditions.
7. Exchange of Contracts: Once your mortgage offer is secured, you can exchange contracts with the developer. At this point, you’re legally committed to the purchase.
8. Building Inspection: When the property is built, you should arrange for a snagging survey. This will check for any defects or problems that need to be fixed before you move in.
9. Completion: Once everything is in order, you can complete the purchase. Your lender will send the mortgage funds to your solicitor, who will then transfer them to the developer.
10. Repayment: After completion, you’ll start making your mortgage repayments. Your first payment is typically due one month after completion.

New build developer incentives

Developers of new build properties often offer various incentives to attract potential buyers. These incentives can range from financial contributions to upgrades in the property. Here are a few common examples:

1. Deposit Contributions: Developers might offer to contribute to your deposit, which can help reduce the initial cost of the property.
2. Stamp Duty Paid: In some cases, developers might offer to pay the Stamp Duty Land Tax. This can be a significant saving, particularly for more expensive properties.
3. Part Exchange: Some developers offer a part exchange scheme where they buy your existing property as part payment for the new build. This can help if you’re struggling to sell your current home.
4. Furniture Packs or White Goods: Developers might offer to include furniture, white goods (like refrigerators, washing machines, or dishwashers), or upgraded fixtures and fittings in the price of the property.
5. Service Charge Paid: If the property comes with a service charge (for maintenance of common areas, for example), the developer might offer to pay this charge for a certain period.
6. Legal Fees Paid: Some developers may offer to cover the cost of your legal fees. This usually involves using a solicitor recommended by the developer.
7. Show Home Sales: When a developer is selling off the show home, it often comes fully furnished with high-spec fixtures and fittings.
8. Mortgage Paid for a Period: In some cases, developers may offer to pay your mortgage for a set period, such as the first six months or a year after you move in.

It’s important to remember that while these incentives can make a new build property more appealing, they should not be the sole basis for your decision to purchase. Always thoroughly research the property and the developer, and consider seeking advice from a solicitor or a financial advisor before making a commitment. Be sure to understand the full terms of any incentive offered to ensure it truly benefits you in the long run.

New build mortgage offer periods

A mortgage offer period is the length of time for which a mortgage offer is valid. For most residential properties in the UK, a mortgage offer is typically valid for up to six months from the date it is issued. This means that the mortgage needs to be completed (i.e., the funds have been released to the seller) within this time frame.

However, for new build properties, this can sometimes be a challenge. The reason is that there might be a delay between when you exchange contracts and when the property is finished and ready to move into. If this period is longer than the validity of the mortgage offer, then you could potentially end up without a valid mortgage offer when it’s time to complete the purchase.

Recognising this issue, many lenders offer extended mortgage offer periods for new build properties. Instead of the standard six months, the mortgage offer might be valid for nine or even twelve months. Some lenders might also be willing to extend the offer further if the property still isn’t ready when the offer period expires.

It’s important to understand your lender’s policy regarding the mortgage offer period for new builds. If there’s a risk of your offer expiring before completion, you’ll want to discuss this with your lender. You might need to go through a process to extend the offer, or in some cases, you might need to reapply for the mortgage. It can also be beneficial to work with a mortgage broker or advisor, as they can help you navigate these complexities.

Can I extend my offer period?

Yes, it is often possible to extend a mortgage offer if your new build home isn’t ready before the offer expires. The specific process and possibilities for extension, however, can depend on the lender.

Here are the general steps involved:

1. Speak to Your Lender: As soon as you realise that your property may not be completed before your mortgage offer expires, get in touch with your lender. Discuss your situation and explore your options.
2. Formal Application: Depending on your lender’s policy, you may need to make a formal application to extend your mortgage offer. This may require providing updated information about your financial situation to ensure that you are still in a position to afford the mortgage.
3. Re-assessment: The lender may carry out another assessment of your circumstances. They might need to run another credit check, assess your income and outgoings again, or revalue the property. This can depend on how much time has passed since the original offer was made.
4. Mortgage Offer Extension: If the lender agrees, they will extend your mortgage offer for a certain period, often around three months, but this can depend on the lender’s policy and your circumstances.

It’s important to note that not all lenders will extend mortgage offers, and some may require you to reapply entirely. Additionally, the lender might change the terms of the offer if your circumstances or the property market have changed.

Therefore, when you are securing a mortgage for a new build property, it can be a good idea to check the lender’s policy on offer extensions. It can also be beneficial to work with a mortgage broker or advisor, as they can help you navigate these issues and communicate with the lender on your behalf.

Why are mortgage assessments for new builds more strict?

The mortgage assessment process for new builds can sometimes seem more stringent for several reasons:

New Build Premium: New build properties often come with a premium price, meaning they’re sold at a higher price compared to similar pre-owned properties in the same area. Lenders are aware of this and may lend a smaller proportion of the property value for new builds. This is because if you were to sell the property shortly after buying it, it might not fetch the same premium price, especially if the overall property market has softened.

Project Delays: There can be delays in the completion of new build properties due to various reasons, such as construction issues or legal complications. Lenders consider these risks and may therefore scrutinise applications for new build properties more closely.

Future Value: Lenders also consider the future value of the property when deciding how much to lend. With new build properties, this can be uncertain, particularly in a new development where there isn’t a track record of property sales to establish values.

Mortgage Offer Validity: As mentioned before, the time between the mortgage application and the completion of a new build property can be longer than the typical six-month validity period of a mortgage offer. If there’s a risk of the offer expiring before the property is ready, this might require additional considerations by the lender.

Property Specifications: Some lenders may have stricter criteria for properties of certain types or in certain locations. For example, a lender may be less willing to lend on a high-rise flat in a new development compared to a house due to perceived higher risks and lower resale value.

It’s important to discuss with your lender or mortgage advisor about the specific criteria and requirements for new build properties. Also, having a mortgage agreement in principle can reassure developers that your financing is on track.

How much can I borrow on a new build mortgage?

The amount you can borrow on a new build mortgage in the UK is primarily based on your income and your outgoings, as well as your credit history. Most mortgage lenders will lend up to 4.5 times your annual income, though some may go up to 5 times or even more in certain circumstances.

However, the maximum amount you can borrow may be lower for a new build property compared to an existing property. Some lenders are more conservative with new build properties due to the potential risks, such as the new build premium and potential delays in construction.
In general, here are some of the factors that lenders will consider when deciding how much to lend:

1. Income: Lenders will look at your regular income, including salary, bonuses, overtime, and any other sources of income. If you’re self-employed, you’ll typically need to provide evidence of your income from the past two or three years.
2. Outgoings: Lenders will also consider your regular expenses, including bills, debts, living costs, and other significant expenses such as childcare. The aim is to ensure that you can comfortably afford the mortgage repayments along with your other outgoings.
3. Credit History: Your credit history can also impact how much you can borrow. If you’ve had financial difficulties in the past, such as missed payments or defaults, lenders might be more cautious about how much they’re willing to lend.
4. Deposit: The size of your deposit can also affect how much you can borrow. The more you’re able to put down as a deposit, the less risk there is for the lender, which might allow you to borrow more. For new build properties, you might need a larger deposit compared to existing properties.
5. The Property: Lenders will also consider the property itself when deciding how much to lend. They’ll typically carry out a valuation to ensure the property is worth the price you’re paying and might lend less if there are any issues with the property.

Can I buy a new build off-plan?

Yes, it is indeed possible to buy a new build property off-plan in the UK, which means you agree to purchase the property before it’s been built. In fact, this is quite a common approach for new build homes. Here are a few key steps and considerations if you’re thinking of buying off-plan:

1. Research the Developer: It’s crucial to check the track record of the property developer. Look at their previous developments, their financial stability, and any reviews or feedback from previous buyers.
2. Understand the Plan: You’ll be making your purchase based on the developer’s plans and specifications, along with any show homes you might visit. Make sure you understand exactly what’s included in the price and what might be considered extras.
3. Reservation Fee: You’ll typically need to pay a reservation fee to secure your plot. This is usually deducted from the final purchase price.
4. Contract: Ensure you have a solicitor to check the terms of the contract before you sign anything. Pay particular attention to what happens if the property isn’t finished by the expected completion date.
5. Mortgage: Getting a mortgage for an off-plan purchase can be more complex than for an existing property. Make sure you discuss your plans with a mortgage advisor or broker, and understand when you’ll need to have your financing in place.
6. Snagging Survey: Once the property is built, it’s recommended to carry out a snagging survey. This will check for any defects or issues that need to be addressed before you move in.
7. Completion: You’ll complete the purchase once the property is built and any issues from the snagging survey have been resolved.

Buying off-plan can have its benefits, such as having a say in the finishings or being able to reserve a desirable plot. However, it can also come with risks, such as delays in the building process or changes in the property market. Make sure you understand these potential risks and consider seeking advice from a solicitor and a financial advisor.

What if the property value changes?

When you purchase a new build property off-plan, you agree to a price before the property is built, which means that the value of the property might change between when you agree to the purchase and when it’s completed. There are two main scenarios:

1. Increase in Property Value: If the property value increases, you stand to benefit as you’ve effectively bought the property at a discount to its current market value. However, be aware that an increase in property value could potentially increase your Stamp Duty Land Tax liability if it pushes the purchase price into a higher tax band.
2. Decrease in Property Value: On the other hand, if the property value decreases, you could end up in a situation where you’ve agreed to pay more for the property than it’s currently worth. This is known as being in ‘negative equity’.

A drop in property value can be problematic for several reasons. Your mortgage lender might do a second valuation before releasing the funds, and if the property value has dropped, they might not be willing to lend you as much as originally agreed. This could potentially leave you unable to complete the purchase unless you can make up the shortfall.

Furthermore, if you need to sell the property soon after buying it, you might not be able to sell it for as much as you paid, which could leave you with a debt to the mortgage lender.

Because of these risks, it’s crucial to carefully consider your decision and seek professional advice when buying off-plan. Make sure you’re not overstretching yourself financially and that you have a contingency plan in case things don’t go as expected. It could also be worth negotiating a clause into the contract that allows you to renegotiate or even pull out of the purchase if the property value decreases significantly.

Will I still need to pay a reservation fee?

Yes, when buying a new build property, especially off-plan, you will typically need to pay a reservation fee. The reservation fee is paid to the developer to secure the property and remove it from the market.

The amount of the reservation fee can vary, but it is often between £500 and £2000 in the UK, though it could be higher for more expensive properties.

The reservation fee is generally deducted from the purchase price when you complete the purchase. This means that you don’t lose the money, but it reduces the amount you’ll need to pay later.

Before paying a reservation fee, it’s essential to understand the terms. For example, if, for some reason, you decide not to go ahead with the purchase or if your mortgage application is declined, you might not get the reservation fee back. These terms can depend on the developer, so ensure you’re clear about them before proceeding.

Will I need a new-build mortgage lender?

Not all mortgage lenders offer mortgages for new-build properties or properties bought off-plan, so it’s crucial to check this before proceeding. There are, however, many lenders who do specialise in new-build mortgages, and these can be a good choice if you’re buying a new-build home.

These lenders understand the unique challenges and timelines associated with new-build properties, such as the potential for construction delays. They also understand the risks associated with buying a property that has yet to be built, which can make the mortgage application process smoother.

However, even if a lender offers new-build mortgages, they may have specific criteria or restrictions. For example, some lenders may require a larger deposit for new-build properties compared to existing properties. Others might only offer their new-build mortgages through certain brokers.

It can be beneficial to work with a mortgage broker when buying a new-build property. They can help you navigate the process and find a lender who meets your needs. They can also help you understand the terms and conditions of the mortgage offer and ensure you’re getting the best deal.

Remember, even if you’re buying a new-build property, you’ll still need to meet the lender’s general eligibility criteria. This will typically involve a credit check, an assessment of your income and outgoings, and possibly a valuation of the property.

How long does it take to get a mortgage for a new build?

The timeline for getting a mortgage for a new build property can vary widely, and it’s often a bit longer compared to getting a mortgage for an existing property. There are several stages to the process and numerous factors that can affect the timeline. Here’s a rough guide:

1. Mortgage Agreement in Principle: This is a preliminary stage where a lender indicates how much they may be willing to lend you. This can usually be obtained within a few days or even on the same day.
2. Full Mortgage Application: Once you’ve had an offer accepted on a property and you’ve paid the reservation fee, you can proceed with a full mortgage application. The lender will need to assess your financial situation in detail, which can take a couple of weeks.
3. Valuation: The lender will need to conduct a valuation of the property. For new builds, this might be based on the developer’s plans and specifications if the property isn’t built yet. This process can take a few days to a week.
4. Mortgage Offer: If your application is successful and the lender is satisfied with the valuation, they’ll issue a mortgage offer. This usually happens a few days to a week after the valuation.

So, overall, you might be looking at around 3-6 weeks from starting the application to getting a mortgage offer. However, this is just a rough guide, and it can take longer in some cases.

Bear in mind that for off-plan purchases, there might be a significant gap between when you get the mortgage offer and when you complete the purchase. The mortgage offer is usually valid for six months, so if the property won’t be ready within that time, you’ll need to discuss this with the lender. They might be able to extend the offer, or you might need to reapply closer to the completion date.

What is a mortgage agreement in principle?

A Mortgage Agreement in Principle (AIP), also known as a Decision in Principle (DIP), Mortgage Promise, or a Mortgage in Principle, is a statement from a mortgage lender indicating that they would ‘in principle’ be willing to lend a certain amount to a prospective borrower based on some basic information.

An AIP is usually given after a lender has performed a basic check of your credit history and assessed information about your income and personal circumstances. It’s not a guarantee that they will definitely give you a mortgage because they’ll need more detailed information about you and the property before making a final decision.

However, an AIP can be useful when house hunting because:

1. It gives you an idea of how much you could borrow and, therefore what price range you can afford when looking at properties.
2. It shows estate agents and sellers that you’re a serious buyer who is likely to be able to secure a mortgage on a property.
3. In a competitive market, it might put you in a stronger position compared to other buyers who don’t have an AIP.

Will I need home insurance to get a new build mortgage?

Yes, having appropriate home insurance is typically a requirement from mortgage lenders, whether the property is a new build or not. There are two main types of home insurance:

1. Buildings Insurance: This covers the cost of repairing or rebuilding your home if it’s damaged by things like fire, flood, or subsidence. Buildings insurance is usually a condition of your mortgage agreement. The lender’s main interest is in ensuring that their security (i.e., the property) is protected. Therefore, you’ll typically need to have buildings insurance in place from the date of the exchange of contracts, not from the completion date.
2. Contents Insurance: This covers the cost of replacing your belongings in your home if they are damaged, destroyed or stolen. Contents insurance isn’t typically required by mortgage lenders, but it’s still a good idea to have it to protect your belongings.

For a new build property, the builder often provides a warranty, such as the National House Building Council (NHBC) 10-year warranty. This warranty covers certain defects and structural problems, but it isn’t a substitute for buildings insurance. You’ll still need buildings insurance to cover other risks, such as fire or flood.

Before getting insurance, it’s a good idea to shop around and compare quotes from different providers. Make sure you understand what is and isn’t covered under each policy, and consider whether you need any additional cover for things like accidental damage or high-value items

Getting the best mortgage rates for your new build

Getting help to buy a new build property in the UK can come from several sources:

1. Help to Buy Scheme: The government’s Help to Buy scheme can provide an equity loan for a portion of the property’s price. This can make buying a new build home more affordable, as you’ll only need a 5% deposit and a smaller mortgage. This scheme is available to first-time buyers purchasing new build homes.
2. Shared Ownership: This scheme allows you to buy a share of a property and pay rent on the remaining share. You can increase your ownership share over time, making this a more affordable way to get onto the property ladder.
3. Mortgage Brokers/Advisors: A mortgage broker or advisor can help you navigate the process of getting a mortgage. They can assist in understanding how much you can borrow, which lenders to approach, and how to deal with any issues that arise.
4. Financial Advisor: A financial advisor can help you manage your finances, including saving for a deposit. They can provide guidance on the financial implications of purchasing a property.
5. Developers: Property developers often offer incentives to buyers, such as covering some of the costs (like stamp duty or moving expenses) or offering upgrades on fixtures and fittings.
6. Lifetime ISA: If you’re saving for your first home, the government will boost your savings by 25% (up to a maximum of £1,000 per year) with a Lifetime ISA.
7. Local Councils: Some councils offer local schemes to help residents buy homes, including providing loans for the deposit.
8. Online Resources: Websites like the Money Advice Service or Citizens Advice provide a wealth of information about buying a property and available assistance.

Remember, it’s important to seek professional advice before committing to a property purchase to make sure you fully understand all costs, responsibilities, and potential risks.