There are many reasons why you would be interested in purchasing a new build property. You may be drawn to the fact that there will be no property chains or that you can benefit from government schemes in place to help people climb on the property ladder.
However, if you need a mortgage to cover the cost, you should familiarise yourself with some issues that often come up in getting a mortgage for new build homes.
When purchasing a new build property, developers can require you to adhere to strict timeframes. For instance, you may only have 28 days for exchanging contracts after you have put down a deposit.
This can be a problem for your mortgage lender as your mortgage application is likely to take over a month to be processed.
You should prepare and get the necessary documents in order ahead to counter this issue. It will help if you read our article on how to make a successful mortgage application. It will equip you with the information you need to on how to prepare to buy your new home stress-free.
Mortgage offer validity periods
You can buy a new build off-plan without facing any complication. Generally, lenders are familiar with how new build off-plan works.
However, most mortgages are generally valid for 6 months. So you will have approximately 6 months after you get the mortgage offer to complete the purchase on the house.
If your new home cannot be ready within that period, though you may ask your lender to extend your mortgage, generally your mortgage lender will have to re-assess your mortgage application.
Some mortgage lenders have products specifically designed for new-build homes that have a more extended validity period than standard mortgages; by up to 3 months.
Stricter limits on lending
You will find that generally, mortgage lenders will have stricter limits on the amount they will offer as a loan for new build homes. Mortgage lenders do this to protect themselves from the devaluation of the property after the initial years.
For flats, you will find that mortgage lenders are only willing to lend up to 75% of the property's value. Whereas, for new build homes, you will find that mortgage lenders are only willing to lend up to 85% of the property's value.
Consequently, you will have to arrange for a larger deposit when it comes to buying a new build home.
There are other ways of arranging finances for new build homes. You can take benefit of the government Help to Buy Equity Loan scheme. Through this scheme, the government lends you up to 20% of the value of the new build and 40% if you are buying London by putting down a 5% deposit. Further, you will not have to pay interest on the amount for the first five years.
So, with just a 5% deposit, you can secure yourself a new build mortgage.
You will find that some developers offer incentives such as paying your stamp duty or covering the legal fees to attract customers.
However, you should be aware that the mortgage lender will consider any incentives that the developer is offering. As long as the incentives are in total not more than 5% the value of the property, there should be no issue. However, if it is more than 5% of the property's value, some problems could come up.
In such a case, the mortgage lender may not lend against any amount that exceeds 5% of the property's value. This can considerably impact your loan to value ratio, consequently, affecting your mortgage rates.
Special new build mortgages
It will be a good idea to get a mortgage broker to help you find a mortgage for a new build home. A good mortgage broker will be aware of the products available in the market and guide you to one that provides the most value.
Click here to learn about other types of mortgages.
Further, if you want to find out the affordable home ownership government schemes, click here.