New build mortgage

Last updated: March 2024 | 3 min read

Embarking on a new build mortgage adventure in the UK? Discover the specific nuances of these mortgage types UK, uniquely designed for your dream newly built home. Understand the process duration with how long does it take to get a mortgage offer and the importance of do I need mortgage protection insurance. This guide offers you tailored insights, preparing you for a well-informed property venture.

Introduction to new build mortgages

What is a new build mortgage?

A new build mortgage facilitates the purchase of a recently constructed or off-plan property. Lenders tailor these products to meet the unique timeline and payment structure inherent in buying a new build. Unlike traditional home loans, they often feature agreements between buyers and developers before the property's completion. New build mortgages sometimes present distinct advantages, like longer-lasting offers which synchronize with construction periods.

Key benefits of a new build property

New build properties attract buyers with their modern design and potential financial incentives. These homes are built to current environmental standards, often resulting in lower energy bills. Many developers provide enticing deals, such as the option to personalize finishes before moving in. The absence of an onward property chain simplifies the buying process, and some properties come with warranties or guarantees, offering peace of mind to the new owner.

Why consider a new build property?

Energy efficient designs and modern amenities

National House Building Council standards

New build homes often exceed existing energy efficiency standards. Their construction adheres to regulations set by the National House Building Council, ensuring high levels of insulation and the latest energy-saving technologies. Buyers of new build properties enjoy reduced utility bills and contribute to lower carbon emissions.

Developer incentives: Are they worth it?

Developers sometimes offer incentives to buyers of new build homes. These can include payment of Stamp Duty or provision of white goods. However, the value of these incentives should be weighed against the purchase price to determine their true benefit.

Comparing new build with older properties

New build homes provide modern living spaces designed for today's lifestyles. In contrast, older properties may have larger rooms and more character but can be less energy efficient than newer builds and may require more maintenance.

Understanding the financials

What deposit is required for a new build mortgage?

Mortgage lenders typically ask for a higher deposit for new build properties, often around 15-20% of the purchase price. The Deposit Unlock scheme has emerged, allowing buyers to secure a new build home with a much lower deposit.

How property value affects your mortgage deal

The value of the property influences the mortgage offer. A higher valuation can lead to more competitive mortgage rates, whereas a lower valuation may affect the loan-to-value ratio and thus the mortgage terms.

Impact of local authority building control

Local authority regulations can affect property value. Compliance with these standards assures lenders that the build property is a secure investment, potentially affecting the mortgage terms offered.

The application journey

Starting your mortgage application: A step-by-step process

Mortgage lenders expect detailed information when you apply for a mortgage on a new build home. This process often starts with the mortgage application and can stretch from preliminary inquiries to final approval. As a buyer, you prepare by gathering necessary documents such as proof of income, identification, and details of your financial history. Mortgage providers also require information on the specific new build property you aim to purchase.

Choosing the right mortgage provider

Selecting a mortgage provider hinges on their familiarity with new build properties and the competitiveness of their products. Mortgage offers can vary significantly, not just in terms of rates but also regarding flexibility and terms crucial to new build purchases, such as extended offer validity. It's beneficial to survey several lenders to ensure their mortgage products align with the specifics of buying a new build property.

What to expect from mortgage lenders

Mortgage lenders assess risk when considering a mortgage application for a build property. They evaluate your creditworthiness, the deposit amount, and the specifics of the new build property, including its location and build quality. Expect rigorous checks and detailed questions, especially when buying off plan, as lenders scrutinize the project's viability and the developer's reputation.

Lending criteria for build properties

The lending criteria for build properties often incorporate additional checks due to the unique nature of these transactions. Lenders might inquire about the new build's warranty, such as the National House Building Council (NHBC) guarantee, or whether the property is underwritten by an international general insurance company. They assess if the property meets their lending criteria, which ensures their investment is secure.

Government schemes and new build mortgages

How does the shared ownership scheme influence mortgages?

Shared ownership schemes provide an avenue for first-time buyers and key workers to step onto the property ladder, often impacting the type and terms of the mortgage needed. Buyers purchase a share of a new build home and pay rent on the remaining share, usually owned by a housing association. Mortgages tailored to shared ownership can differ, with specific criteria set by lenders and the scheme's rules.

Equity loan scheme: A path to a new build home?

The equity loan scheme assists homebuyers in purchasing a newly built house by providing a loan for a portion of the home's value, thereby reducing the mortgage amount needed. This government scheme often requires a minimum percentage of the property's value as a deposit and has particular conditions attached that affect the mortgage agreement.

Benefits for first-time buyers and subsequent owners

Government schemes like Help to Buy offer tangible benefits for first-time buyers and subsequent owners. They can significantly lower the entry threshold to the property market by reducing the initial capital required. Schemes might offer advantages such as lower interest rates and deposit requirements, making mortgages more attainable for new applicants.

Timelines and processes

Timeline for obtaining a new build mortgage

Securing a mortgage for a newly built property demands punctual action and precise timing. The entire process, from application to approval, typically spans several weeks. Homebuyers start by choosing a fee free mortgage broker or direct lender and obtaining an agreement in principle (AIP). This initial step can take a few days to a week. Post-AIP, selecting the suitable mortgage product and submitting a full application ensues, followed by the lender's valuation of the property. If buying off plan, this valuation is often based on the developer's specifications and plans. It's essential for buyers to align their timelines with the construction stages and anticipated completion date to ensure the mortgage offer remains valid throughout.

Mortgage offer periods explained

Mortgage offers for new build properties usually have a validity period that can range from three to six months. Given the construction of a new build house can sometimes face delays, it's critical for the buyer to check the mortgage offer's expiry date. If a build house is not completed before this date, the buyer may need to reapply, potentially incurring additional credit checks and valuations. Proactively, buyers should keep an open line of communication with home builders federation-approved developers to stay updated on the construction progress.

The importance of the completion date

The completion date in the buying process of a new build home is not just a target; it's the pivot around which the final stages revolve. Buyers must be ready to exchange contracts and pay the reservation fee early in the buying process. Following this, the completion date influences when final payments are due and the transfer of ownership occurs. It's vital for new build buyers to confirm their mortgage funds align with this date to avoid any contractual breaches with property developers, which could lead to penalties or even the reservation being forfeited.

Frequently asked questions

Are new build mortgages more complex than other mortgages?

Mortgages for new build homes can present additional layers of complexity compared to those for older properties. Buyers often face stricter lending criteria and timelines due to the unique nature of purchasing a property yet to be completed. Build properties underwritten by lenders may require higher deposits and come with specific conditions related to the building's completion and warranty coverage.

Is there a higher interest rate for new build properties?

Interest rates for new build homes may differ from those of existing properties. Lenders sometimes adjust rates to reflect the perceived higher risk associated with new builds, which could include the potential for delays in construction or initial depreciation. It's advisable to discuss with a mortgage broker who can find competitive deals and advise on the best mortgage deal for your situation.

What are the risks of buying off plan?

Buying off plan entails committing to a property that may not yet be built. Risks include potential delays in construction, changes in property prices affecting the value of the finished home, and the possibility that the finished property might not meet expectations. A reservation fee is typically paid to secure the purchase, but buyers should ensure they have robust contractual protections in place.

Can I apply for a mortgage before the building work is complete?

You can apply for a mortgage before completion of the building work. Mortgage offers for new builds often come with longer validity periods to account for construction timelines. It's essential to secure a mortgage offer that aligns with the expected completion date of the new build property to ensure financing is in place when needed.

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