Buying a new build home

What is a new build mortgage?

New build mortgages are mortgages designed for new homes. They’re similar to normal mortgages, but they often come with a few extras to suit the way new homes are sold. A new build property is usually one that has been built within the past two years, hasn’t been sold before, and is being sold directly by the home builder. New build homes are usually part of larger developments but can also be individual plots built on a smaller scale.

What is classed as a new build home?

Whilst we might think that the definition of a new build is pretty self-explanatory, banks and building societies all have their own definitions for them. Some of these include:

• Any property being sold for the first time on the open market in its current state
• A home that’s been built or converted within the last 12 months
• A property that was first registered 2 or fewer years ago and the property is subject to first sale by the developer
• A property that has never been occupied

A good general rule of thumb is if the house is being sold for the first time by the developer, hasn’t been lived in before, or is less than 2 years old, it’ll most likely be classed as a new build home.

What does ‘off plan’ mean?

Off plan is where your new build home hasn’t been finished yet. If you’re buying a property which is still being built, or where work hasn’t started yet, it’s known as buying “off plan”.

If you’re buying off plan, you might need a bank or building society that’ll keep the mortgage offer open for several months. This is because a mortgage offer from most lenders will be valid for six months. If your home takes longer than this to build, your offer will expire, and you’ll have to apply again. If this happens, there’s no guarantee you’ll get the same rate as before.

How much deposit do I need for a new build house?

There isn’t one hard and fast rule for new build mortgage deposits. Some lenders will ask for a 25% deposit, while others may offer 100% mortgages. L&C data shows that the most common deposit amount required by lenders is between 5% and 10%.

Whilst these amounts will vary from lender to lender, they can also depend on the area of the country you’re in.

How much deposit do I need for a new build flat?

For a new build flat, you’ll generally find that you’ll need a bigger deposit. Our L&C data has shown that most banks and building societies will want you to have at least 15% of the house price. However, some prefer 25% whilst others will accept 5%.

Why do I need more deposit for a flat than a house?

There are a few reasons that you might need to find a bigger deposit for a new build flat.

• Most flats are leaseholds with expiry dates, ground rents, and service charges that can make them harder to sell and riskier for a bank or building society to finance
• Banks or building societies won’t even offer you a mortgage without a valid EWS1. If the EWS1 form shows any fire safety risk, then lenders will reduce their risk by asking for a higher deposit
• Flats are more at risk of losing their value when house prices fall, meaning that the bank or building society could be left with an asset they can’t sell if the worst case happens
• Relying on external management companies for communal upkeep and building structure makes flats, especially high-rises or ex-council blocks, less appealing to lenders

Why choose a new build mortgage?

Benefits of new build homes:

• You can often choose the fixtures and fittings you want
• Usually come with a warranty to protect against defects in building work
• Tend to be more energy-efficient than older properties
• Generally in better condition than older homes, so you’re less likely to face repair or maintenance costs
• No previous owner means you might avoid being in a property chain, which can make the buying process quicker and reduce the chance of delays or complications

Drawbacks of new build homes:

• Often more expensive than similar, older properties
• You may have to pay a reservation fee when buying off plan – and you could lose this if you back out
• Building work delays can still hold up your move, even if there’s no property chain
• Mortgage lenders may be stricter with how much they’re willing to lend on new builds

How new build mortgages work

A new build mortgage works like any regular mortgage. You’ll borrow a certain amount of money from a bank or building society to buy your home, and each month you’ll pay some back. The goal is to eventually pay all the money back and own your home outright. But new build mortgages do have a few differences to ‘normal’ mortgages:

• Some lenders limit the loan-to-value (LTV), meaning you might need a bigger deposit (especially for new build flats)
• Offers may need to be valid for longer than usual (up to 6–9 months). This is especially true if you’re buying off plan
• Some developers offer incentives (like cashback or covering legal fees), which lenders may take into account when valuing the property (with a repayment mortgage. Interest only mortgages are built differently, and you can learn more about them here)

Who can get a new build mortgage?

As long as you meet your mortgage lender’s criteria, anyone can get a new build mortgage. Things that you’ll need to get a mortgage include:

• Stable income
• Good credit history
• Ability to afford the monthly payments

But for new build properties, lenders may also look at:

• The type of property (house vs flat)
• Whether you're buying off plan
• Any incentives or discounts from the developer

What schemes are available for new build mortgages?

The UK Government, specific lenders, and developers all offer certain schemes that can help make your new build home more affordable.

First Homes scheme

The First Homes scheme is designed to help first-time buyers (especially key workers and local residents) get onto the property ladder.

• Homes are sold at a discount of at least 30% compared to the market price
• Some areas offer up to 50% off
• The discount stays with the property when you sell it, so the next buyer benefits too
• The scheme only applies to new build homes from developers who are taking part

To qualify, you need to be:

• A first-time buyer
• Earning less than £80,000 a year (or £90,000 in London)
• Buying in the area you live or work

Shared Ownership

Shared Ownership lets you buy a share of a home (usually between 10% and 75%) and pay rent on the part you don’t own.

• You can increase your share over time (this is called staircasing)
• The homes are usually new builds, but there are some resale properties too
• A good option if you can’t afford a full mortgage just yet

To qualify, you must:

• Have a household income of £80,000 or less (£90,000 in London)
• Be a first-time buyer or someone who used to own a home but can’t afford one now

Deposit Unlock

The deposit unlock scheme is backed by major UK house builders and mortgage lenders.

• You only need a 5% deposit to buy a new build home
• It’s open to first-time buyers and existing homeowners
• Mortgages are backed by the developer, making lenders more willing to offer higher LTVs.

Not every builder or lender offers this, so you’ll need to check what's available with the developer.

Own New Rate Reducer scheme

Buyers of new build homes could benefit from lower mortgage rates thanks to a new scheme designed to give homeowners more power over their monthly outgoings. The Own New Rate Reducer scheme offers new build customers reduced fixed mortgage rates over two or five years, with lenders able to provide these lower rates by using completion incentives offered by the developer.

Making repayments on a new build mortgage

Your repayments will depend on how much you borrow, the mortgage type, and the term you choose. Most people go for a repayment mortgage with fixed monthly payments. Bear in mind that if you're buying off plan, you won’t start repayments until your mortgage completes (when the home is finished, and you get the keys).

Some developers require a reservation fee, and you’ll still need to pay your deposit and legal costs.

How to apply for a new build mortgage with L&C

Step 1 – Start online

Compare the latest mortgage deals with our online Mortgage Finder.

Step 2 – See what you could borrow

See how much you could borrow with an L&C Mortgage in Principle. It won’t impact your credit score, and you could get your certificate in as little as 15 minutes.

Step 3 – Start your application with a trusted adviser

Speak to a dedicated mortgage adviser and find a deal that suits your specific circumstances.