Guide to new build mortgagesIf you’re considering buying a new build home, the mortgage process can sometimes be a bit more complex than for an older property, particularly if you’re buying off-plan.
Here, we explain everything you need to know about getting a new build mortgage, and how L&C can help.
The appeal of new build homesNew build properties often appeal to homebuyers as they typically come with a warranty such as the NHBC 10-year certificate which protects you if there are any defects in the building work.
You may be able to choose your own fittings and finishes such as tiles, carpets, kitchen and bathroom, and new homes can be eligible for Government schemes such as Help to Buy.
They also have the advantage that you won’t be involved in a chain, which can make the whole buying process much easier.
Another benefit is that new homes are typically more energy-efficient than older properties, which could save you money on your gas and electricity bills.
Securing a new build mortgageIf you’re considering buying a new build property, your first step should be to speak to a mortgage broker. We can help you work out how much you can afford to borrow and what it'll cost. We can also check if you're eligible for any home-buying schemes, such as Help to Buy.
Lenders need to know that you are buying a new build because you may need a mortgage that can cope with a long delay between exchange and completion.
Otherwise there’s a risk that your mortgage offer might run out before your home is ready to move in to and then you’d need to apply for a mortgage all over again.
Using Help to Buy to purchase a new build propertyIf you’re buying a new build property in England costing no more than £600,000 and only have a deposit of 5% of the property price to put down, you may be eligible for the Help to Buy equity loan scheme.
Under this scheme, the government will lend you a further 20% of the purchase price, so you’ll only need a mortgage for the remaining 75% once your 5% deposit is factored in. If you‘re buying in London, you can apply for a government loan worth up to 40% of the property price.
The property you are buying must be your main residence, not a Buy-to-Let property.
You don’t have to pay any fees on the government loan for the first five years. After that there’s a 1.75% annual charge, which increases each year by the rate of inflation plus 1%.
We can tell you if you qualify and the maximum purchase price you’d be able to afford. Then we’ll recommend the best lender and mortgage deal depending on your priorities, as well as checking that Help to Buy is available through your chosen lender.
Find out more in our Guide to Help to Buy
Some developers and housing associations offer new build properties under a shared ownership scheme where you buy a percentage, perhaps 50%, of your house and pay rent on the rest, which the housing association owns.
See our Shared Ownership guide to learn more about how this type of scheme works.
Buying a new build propertyOnce you’ve spoken to a broker and found out how much you’ll be able to borrow, you can start house-hunting.
Sometimes a property you’re interested in might not even be built yet. Usually, you can look round a show home to give you an idea of what it'll look like, but it could be many months before your own new house or flat is ready for you to occupy.
If you are buying ‘off plan’, before any building work has started, you’ll be shown plans so you can see the exact specifications of the property you’re hoping to buy.
However long the delay before you can move in, you’ll need to have a mortgage in place before you can exchange contracts. If you’ve got a relatively small deposit of 10% or less, some lenders will place restrictions on the deals available for new build home purchases. As we are new build specialists, we have access to high LTV deals which are not available directly with lenders or some other brokers.
Buyer incentivesMany developers offer incentives or freebies to tempt buyers, including having your stamp duty or legal fees paid. Lenders will take these incentives into account when considering how much to lend you.
They may reduce the amount you can borrow if the incentive is worth a significant amount, for example more than 5% of the value of the property. This could affect the mortgage rates you’re eligible for if it has an impact on your loan-to-to value, or how much you’re borrowing in relation to how much the property is worth.
Again, a broker will be able to advise on the potential impact of buyer incentives on your mortgage.
Once you’ve submitted an offerTo secure your new build home, you’ll need to put down a reservation fee deposit. Some developers work to tight timescales, so you may only have 28 days from the point you pay your deposit to exchange contracts, which means you’ll need to apply for your mortgage as quickly as possible.
Arranging a mortgage at short notice can be a challenge for mortgage lenders, which is where our knowledge and relationships with them can help. We have access to new build priority help desks with mortgage lenders which enables us to process your mortgage application quickly, and reduce the normal timeframe for getting an offer. We’ll communicate and work closely with all parties, including the developer and solicitors.
The new build buying process – at a glance• Step 1 – Contact a broker to see how much you can borrow and which deals you might be eligible for.
• Step 2 - Start house-hunting.
• Step 3 - When you have found your home, negotiate the price and incentives with the builder. It is worth checking again with your mortgage broker to be sure you can afford the final price you agree.
• Step 4 - Now you're ready to go ahead and pay a reservation fee to the builder. Take the reservation form to your mortgage broker and they will start looking for the best mortgage deal for you.
• Step 5 - Apply for the mortgage. Do not delay because the 28-day deadline starts on the day you pay the reservation fee. Supply any documents the lender requests such as proof of income and proof of identity.
• Step 6 - Instruct a solicitor. At L&C we can help you find one if necessary.
• Step 7 - The lender will issue a mortgage offer once it's carried out a survey and approved your application. You'll then be ready to exchange, pay a deposit and set a completion date which will probably be when the building is finally finished.
For help finding the right mortgage for your new build home, speak to one of our expert advisers on 0800 923 2055. Our service is free to use.