New Build Mortgages Explained
Shopping for a new home? There are lots of reasons you may want to consider a new build over an existing home. While new homes are plentiful across the UK, new home mortgages are not. You may find that new home mortgages can be fairly tough to get from lenders. Why is a new build mortgage so much different from a traditional building mortgage? How do mortgages work with new builds? How can you get a mortgage to build a house? This guide will help you understand more about new mortgages to build a house and learn whether a mortgage for a new build might be right for you.
Why Consider A New Build Home?
Before you begin thinking about new build mortgages, it may first help to consider why you might want to own a new build home in the first place. There are many advantages to considering a new build property. One of the most important is that they have a modern design and great features. New build homes often incorporate contemporary design elements and come equipped with the latest features and technologies, which can be ideal for many home buyers. They are built to meet current building standards and regulations, providing you with a comfortable and efficient living environment. The ability to customise your new space is another real advantage. Depending on the stage of construction, you may have the opportunity to customise certain aspects of the property. This can include choosing finishes, fixtures, or even floor plans, in some cases, allowing you to personalise the home to suit your preferences.
Another positive aspect of buying a new build home is just how energy efficient it can be. Each home created today is constructed with energy efficiency in mind. They typically feature improved insulation, double-glazed windows, energy-efficient appliances, and more. This can result in reduced utility bills and a smaller carbon footprint.
They also tend to be safer. New build homes are designed with modern security features, including secure doors, windows, and alarm systems. They may also be built with fire safety measures in place, giving you added peace of mind.
Additionally, they may be cheaper, in the long run, thanks to lower maintenance and repair costs. With a new build property, you’re less likely to encounter immediate repair and maintenance issues that can often arise in older homes. Most new builds come with warranties and guarantees, providing added peace of mind and potentially saving you money on repairs.
New builds also usually offer some amenities existing homes don’t. For example, a new build may give you better access to playgrounds, community centres, or gyms. This can enhance your quality of life and provide convenient facilities within proximity to your home.
There are two other key advantages to new build properties. First, you may be better off with a new build because of the financial incentives involved. The UK government routinely offers schemes to encourage new build purchases. These can include initiatives like Help to Buy, which can assist with financing, or Stamp Duty exemptions for specific properties or price thresholds. These incentives can make buying a new build home more financially attractive. The other advantage is that these properties are easier to buy. When purchasing a new build property, you often deal directly with the developer, so you won’t have to worry about the more challenging aspects of chain property transactions. This can streamline the buying process and potentially reduce the risk of delays or complications.
Why Are New Build Mortgages Harder To Get?
There are several reasons lenders tend to be more careful with new-build mortgages than they are with other kinds of mortgage products. First, new build properties can carry a higher level of risk due to potential construction delays, changes in property values, or issues with the development itself. As a result of that, lenders often have stricter lending criteria for new build mortgages. They may require higher credit scores, lower debt-to-income ratios, and more significant deposit amounts.
Additionally, lenders typically require a property valuation before approving a mortgage. With new builds, the valuation process can be more complex, as there may be limited comparable properties and potential uncertainties around the completion and quality of construction. As a result, lenders may be more cautious in determining the loan-to-value ratio, leading to more conservative lending.
There are other reasons new build mortgages are hard to get, too. The timing is a real issue for many lenders. New build properties often involve stage payments, where funds are released gradually as construction progresses (we’ll talk more about how this works in the next section). This can introduce additional complexity and timing concerns for lenders. They need to coordinate with the developer and ensure that the property meets specific standards at each stage before releasing funds. This can add some administrative burden and potential risks, which lenders may be more cautious about.
It’s important to remember, though, that while new-build mortgages may have their challenges, many lenders are still willing to finance new-build properties. Working with a mortgage advisor or broker specialising in new-build mortgages can help you navigate the process, understand lender requirements, and identify suitable mortgage options that match your circumstances.
Getting A New Build Mortgage
As we mentioned in the introduction, getting mortgages for new builds isn’t always as easy as getting a traditional mortgage. When you obtain a traditional mortgage, the process is relatively straightforward. It typically begins when you research lenders who mortgage houses. Your goal is to find the most suitable options for you. You’ll want to think about several different factors, like interest rates, how repayment works, the fees involved, and features offered by certain lenders. When you find a lender who is right for you, get an Agreement in Principle (AIP). This is a conditional offer stating the amount they are willing to lend you based on an initial assessment of your financial information. It indicates your borrowing capacity and helps demonstrate your seriousness to sellers. At that point, you start searching for a property that meets your needs and budget. When you find a suitable property, talk to the estate agent, then make an offer. If your offer is accepted, you contact your chosen mortgage lender to submit a full mortgage application. They will require detailed information about your finances, employment, and the property you intend to purchase. You’ll need to provide documentation such as bank statements, pay slips, identification, and details about the property. The lender will send out a property valuation expert to ensure it’s worth the amount you’re borrowing. If the is satisfactory, the lender will issue a formal mortgage offer, which tells you more about the terms and conditions of the mortgage, including the loan amount, interest rate, and repayment schedule. If you’re happy with the terms, you begin working with a solicitor to finalise things, and eventually, the lender will transfer the funds to the seller, and you become a homeowner.
With a mortgage on a new build, though, that process can’t work the same way. As with applying for a more traditional mortgage, here you start by applying for a new build mortgage with a lender. They will take a closer look at your financial situation. That assessment will usually include how much you make, your current credit score and your credit history, and several other factors to better decide if you’re eligible for a mortgage and exactly how much you’ll be able to borrow. After your mortgage is approved, the bank usually gives you an offer letter that outlines the terms and conditions of the mortgage, including the loan amount, interest rate, repayment schedule, and any specific requirements related to new build properties. After receiving your mortgage offer, you’ll typically proceed to exchange contracts with the developer. At this stage, you may be required to pay a deposit, usually a percentage of the property’s value. The exchange of contracts legally binds both parties to the transaction. One of the biggest differences, though, comes next. With a traditional mortgage, the lender releases all of the funds to the seller at once. With a mortgage on a new build, though, the funds are released in stages rather than as a lump sum. As construction progresses, the developer will request payment for each stage, known as a stage payment or drawdown. The lender will inspect the property at each stage to ensure it meets the required standards before releasing the funds. Once the construction is complete, the final payment is made, and the property becomes legally yours. At this stage, you’ll sign the final contracts, pay any remaining fees or costs, and the property will be registered in your name. The first mortgage payment is usually due shortly after that.
The New Build Deposit
For many home buyers today, overcoming the hurdle of depositing a home is difficult. With a new build, you may encounter some of the same problems. In a new-build mortgage – sometimes called a buy-to-build mortgage, you will need to pay a fairly traditional deposit to get the loan itself. As with most houses for a mortgage, the deposit required for a new build mortgage depends on several different things: the lender, the specific mortgage product, and your circumstances. However, a common deposit range for new build mortgages is typically between 5% and 20% of the property’s value.
That’s not the only deposit you’ll pay with a new build property, though. When purchasing a new build property, you usually pay a reservation fee to the developer to secure the plot or home you’re interested in. This fee is typically non-refundable and may vary depending on the developer and the property. Typically, the reservation fee ranges from around £500 to £2,000, although it can be higher for more premium properties. The purpose of the reservation fee is to demonstrate your commitment to purchasing it. It is usually paid directly to the developer or their appointed sales agent. It’s important to note that the reservation fee is typically non-refundable, meaning you may not get it back if you decide not to proceed with the purchase.
I Am A First Time Buyer With A New Build – Can I Get Help With The Deposit?
There are several first-time buyer programs available, and that’s true with new builds, too. There are almost as many first-time buyer programs available with these homes as there are more traditional properties.
One great program is called Help to Buy. This government scheme provides an equity loan. It only works for those who want to buy a new build, though. With Help to Buy, buyers contribute a minimum 5% deposit, and the government offers up to 20% of the property’s value (though that’s typically higher in London). This can reduce the amount required for a house mortgage and potentially make homeownership more affordable.
Another option is the Shared Ownership Scheme. Shared Ownership is a way for buyers to purchase part (usually between 25% to 75%) of a new build property. They are required to make a rental payment on the rest of the property. They’re not stuck at that amount of ownership, though. Instead, they can slowly increase how much of the property they own. The process of doing so is called staircasing. This scheme is specifically designed to help individuals with lower incomes or those struggling to afford the full price of a property.
First Homes is another programme you may want to consider. First Homes was launched by the UK government to provide discounted homes for local first-time buyers. Under this scheme, a minimum of 25% of new build homes in development must be offered at a discount of at least 30% of the market value. The discount is passed on to subsequent buyers when the property is sold in the future, helping to maintain affordability for future generations.
The Best Lenders For New Build Buyers
Finding the right mortgage provider is key to getting into a new build home. Start by researching various mortgage lenders in the UK market. Look for lenders that specialise in new build mortgages or have experience in financing new build properties. Explore their websites, read customer reviews, and compare the mortgage products they offer, including interest rates, fees, and terms. At this stage, you’ll want to talk to people you know – like friends and family members – who have just bought new build properties and ask about their experiences with mortgage lenders. Their recommendations can provide valuable insights and help you narrow down your options.
You may also want to consider working with an independent mortgage advisor or broker who specialises in new-build mortgages. They can provide expert guidance, assess your financial situation, and match you with suitable lenders and mortgage products. Mortgage advisors have access to a wide range of lenders, including those that may not be directly accessible to the public.
Keep in mind that some developers have partnerships with specific lenders or mortgage providers. These partnerships may offer exclusive mortgage deals or incentives for buyers of new build properties. It can be worth exploring these options and assessing whether they align with your requirements.
As you shop around, remember that each lender will have its eligibility criteria for new build mortgages. Consider factors such as the maximum loan-to-value ratio they offer, any specific requirements for warranties or guarantees on the property, and whether they accept Help to Buy or other government schemes. Ensure that you meet the lender’s criteria before proceeding with an application.
When you have a few lenders you’re considering, reach out to them directly or through your mortgage advisor to request personalised mortgage quotes. Provide them with accurate information about the property, your financial situation, and the mortgage terms you’re seeking. Compare the quotes to evaluate the affordability and suitability of each option.
Don’t forget to look beyond interest rates and fees and consider the quality of customer service and support provided by the lender. Read reviews, check their responsiveness to inquiries, and assess their reputation for providing a smooth and efficient mortgage application process.
Should You Work With A Broker?
As you shop for new build mortgages, you have a choice – work with a standard mortgage broker or work directly with a mortgage lender. Working with a mortgage broker offers you many advantages.
- Relationships with Many Lenders: Mortgage brokers are in contact with many different lenders and know about a variety of mortgage products. They can help you explore options from different lenders, compare rates, terms, and features, and identify the most suitable mortgage offers that match your requirements.
- Helpful Advice: Mortgage brokers know mortgages better than anyone else in the market. They can provide personalised advice, assess your financial situation, and take you through the entire mortgage process. They can help you navigate the complexities and offer you answers and insights.
- Time-saving and Convenience: Engaging a mortgage broker can help you save a bit of time. They typically research lenders, gather documentation, and complete paperwork for you. They act as an intermediary between you and the lenders, simplifying the process and potentially reducing stress.
- Better access: Mortgage brokers may be able to find mortgage deals or incentives that are not directly available to people through traditional lenders. This can provide you with additional options and potentially help you secure a more favourable mortgage offer.
Working Directly With A Lender Can Be Just As Advantageous, Though.
- Direct access: When working directly with a lender, you have direct access to their mortgage products and services. You can communicate with the lender’s representatives, discuss your specific requirements, and get personalised advice from their mortgage specialists.
- Product knowledge: Lenders have in-depth knowledge of their mortgage products and can provide detailed information about their terms, conditions, and eligibility criteria. They can walk you through the application to make certain that you understand the features and benefits of their specific mortgage offerings.
- Streamlined process: Working directly with a lender can provide a streamlined process as you communicate directly with the decision-making entity. There may be fewer intermediaries involved, potentially resulting in quicker response times and a smoother overall experience.
Ultimately, both options have their advantages, and the choice depends on your preferences and comfort level with the mortgage process. Some individuals may prefer the direct approach of working with a lender, while others appreciate the expertise and convenience offered by a mortgage broker.
Understanding What You Can Afford
One thing you’ll certainly want to do before you ever work to find a mortgage provider or even shop for new builds is to better understand exactly what you can afford. While there are many new build mortgage calculator options out there, it won’t help to use one if you don’t understand even where to begin.
To make sure you know what you can afford to pay for a new build house, you’ll want to begin by taking a look at your budget. Review your income, savings, and existing financial commitments to understand how much is comfortable in terms of spending. Consider your monthly income, expenses, and potential future financial obligations. Aim for a mortgage payment that fits comfortably within your budget and allows you to maintain a comfortable lifestyle. When budgeting for a new build house, you’ll want to think about the purchase price and the other costs associated with homeownership. This includes legal fees, stamp duty (if applicable), moving costs, ongoing maintenance and repairs, insurance, and potential service charges or ground rent in the case of leasehold properties. Don’t forget to consider your long-term financial goals, such as saving for retirement, education, or other investments. Ensure that the purchase of a new build house aligns with your broader financial plans and does not overly strain your financial resources. It’s also a good idea to leave room in your budget for unexpected expenses or changes in circumstances. Having a financial buffer can provide peace of mind and help you manage any unforeseen events or financial challenges that may arise.
At that point, you can usually use online mortgage affordability calculators or consult with a mortgage advisor to assess how much you may be able to borrow based on your income and financial profile. Lenders typically consider factors such as your income, credit history, and debt-to-income ratio when determining your borrowing capacity, so keep that in mind before you ever actually approach a lender.
How To Find A New Build Home
If you think you’re absolutely in the market for a new build home, even though the mortgages can be tougher to get, it may help to learn a bit more about how to find the right home to meet your needs.
The first step is pretty similar to the first step in any property search. Start by making a list of your essential criteria for a new build home. think about things like where you want it to be, how big you want it to be, how many bedrooms it should be, what you want it close to, and any other specifics you need in a home. This will help you narrow down your search and focus on properties that meet your specific needs.
Once you’ve done that, it’s time to start looking around. Explore new build developments in the areas you’re interested in. Visit the websites of reputable developers and look at the various property listings online. Pay attention to the details provided, including floor plans, images, and descriptions of the properties. You may also want to visit some available show homes. Many developers have show homes or sales offices where you can view the properties in person. Take advantage of these opportunities to visit the show homes, walk through the property, and get a feel for the quality of construction and the layout. This will help you assess whether the new build homes meet your expectations and requirements.
As you look at new build home options, evaluate the location of the new build development. Research the surrounding neighbourhood, amenities, transportation links, schools, and other facilities that are important to you. Think about your lifestyle preferences and whether the location aligns with your needs in terms of convenience, accessibility, and quality of life.
Keep in mind that you’re not just looking at the homes themselves, though. You’re also looking at the developers. Look into the reputation and track record of the developer. Consider factors such as their experience, quality of previous developments, customer reviews, and any industry awards or recognition they have received. A solid developer with a history of providing service and quality is more likely to deliver a high-quality new build home. We’ll talk a bit more about this in the next section.
Once you have a shortlist, compare the prices and specifications of different new build properties. Consider factors such as the size of the property, the included features and finishes, and any additional costs or upgrades that may be available. Evaluate the value for money and make sure the price matches what you are seeking.
More than anything else, remember that working with an estate agent who specialises in new build properties can be a real help. They can provide valuable insights, help you work through the process, and help you identify suitable options based on your requirements and budget. Their expertise can save you time and effort in finding the perfect new build home.
Finding A Good New Build Developer
One key step in finding the right property in which to invest is to evaluate the developers who are creating those properties. As you consider various developers, one of the best things you can do is research each developer’s standing in the industry. Look for information on their past projects, the quality of construction, and any feedback from previous buyers. Check if the developer has received any industry awards or recognition for their work. A developer with a solid reputation and a history of successful projects is more likely to deliver a high-quality new build home.
Additionally, you’ll want to do some research on the financial stability of the developer. Find out what you can about their financial standing, including their financial statements, annual reports, or any available information on their financial health. It’s important to ensure that the developer has the necessary resources to complete the project on time and meet their contractual obligations.
You’ll also likely want to consider the developer’s experience and expertise in the industry. Look into their years of operation, the number of projects completed, and their specialisation. Developers with a strong background in new build construction and a proven track record of delivering successful projects will likely have the necessary expertise and knowledge.
You should visit their completed properties, talk to homeowners about their previous developments, or research online reviews and testimonials. Look for signs of attention to detail, use of quality materials, and overall craftsmanship in their construction.
You’ll also want to review the warranty and after-sales service offered by the developer. Check the length and coverage of their warranty policy, including any guarantees on structural integrity or defects. Good developers offer solid warranties and customer service help to address any post-completion issues or concerns.
Finally, ensure that each developer is compliant with legal and regulatory requirements. Verify if they have the necessary permissions, permits, and certifications for construction and selling properties. This includes checking if the developer has adhered to planning regulations, building codes, and environmental standards.
Ready To Buy Your New Build?
If you’ve decided purchasing a new build home is right for you, there’s never been a better time.