New Build Mortgages

Key Takeaways

• New Build Mortgages are to be used when purchasing a property that has never been lived in before or is a refurbishment.
• Some lenders require a higher deposit for a new-build property
• Often you will need to reserve your property for a fee. This is known as 'purchasing off plan'
• It is not a requirement to use a developer's in-house Mortgage adviser
• You may be able to raise less deposit if you use a Shared-ownership scheme

What are New Build Mortgages?

A New Build Mortgage is for a property that is completely new. It has no previous owners or occupiers. It can be a flat or a house. However, some lenders will accept conversions and refurbishments within the past 2 years.

Lenders often require a larger deposit amount for Newly built homes. This is because the premium paid for a new build can often be over the market value. That brings risk to the lenders as after purchase, the value of the home may drop to correct the inflated price.

Generally, most lenders state that 15% is required, however, that is not always the case.

Sometimes there are new home schemes that allow you to purchase with a smaller Mortgage deposit. This includes the government schemes that run, such as help to buy. Although this has stopped taking further applications from 31st October 2022, a new scheme is expected to replace it.

There are also a few lenders who have begun to offer Mortgages with just 5% deposits on new-build houses, alongside 10% Mortgage deposits for newly built flats. It is not uncommon for the deposit requirements to vary between property types.

If you are buying a new-build home, there are specialist mortgage advisers who work with the lenders who offer deposits at this level. If 5% is the deposit amount you have available, you may spend some time trying to find the right mortgage for you. Speaking with a Mortgage adviser should save you time hunting for a lender who can assist you.

The New Build Mortgage Process

Mostly, the process is similar to buying an existing house. There are a few differences you should be aware of.

Securing a new build home

If you are searching for properties, you may be asked to pay a deposit, also known as a Reservation Fee, by the developer to secure the home. If you pull out of the purchase, you may lose this fee.

When looking at properties that aren't new builds, you tend to look in your local area and take note of estate agent signs in the front garden, you may use an application like Rightmove, Zoopla, or Purple Bricks. You decide on the amount you are willing to offer and you submit your bid to the agent. New build properties work slightly differently, mainly because the exact plot you are looking at might not be ready for viewing. 

Instead, you visit a showhome, a showhome is usually a replica flat, or house, designed and laid out in the same sizes and layout as some of the properties on offer. This won't always be a replica of the property you are looking for though. Most showhomes showcase three-bedroom properties. It gives the viewer a sense of space that may not be the same as a one-bed flat on offer. You will need to use your imagination and try to be realistic to avoid disappointment.

If you are still happy, you proceed to review the available plots.  The agent will show you a site map of all of the units available in the development. You will see exactly where the plot will be based, and whether individual plots carry different prices. The price is normally fixed.

Should you decide you have found the plot of your dreams - you can pay a deposit to hold the plot. This is the new build equivalent of having an offer accepted. This is known as purchasing "off-plan".

The deposit amounts do come off of the final purchase amount, but it is an extra cost to raise upfront. Plot deposits can be around £1,000. 

Arranging a valuation on a new-build property

Now you have found your plot, you need to instruct your Mortgage adviser. Be aware that you are not required to use an in-house mortgage adviser provided by the development site. For Mortgage purposes, you will still need a property valuation. How can this be completed if the property doesn't yet exist?

Your mortgage adviser will instruct a surveyor to visit the site. The surveyor will request a copy of the fully completed UK Finance Disclosure Form from the sales team, along with floor plans for the property and confirmation of the property’s position and surroundings within the development. The Valuer will also request details of comparable on-site sales transactions as part of the wider valuation process. Should the property be ready for viewing, then normal surveying methods will be undertaken.

There is (very) rarely a scenario where your mortgage provider may have already helped a few clients looking at the same development. Particularly for flats, if this is the case, the lender may have set a limit to the maximum amount of lending exposure against a development or block of flats. Your Mortgage adviser should hear back quickly if this is the case, but you will need to find a new lender. 

New Build Site visits

You would have by now probably seen a few of your friends sharing pictures on Instagram of them in their hard hats visiting development sites... Site visits are possible and yes you should. Speak to the developer to see how you can arrange a visit. This is part of the excitement of buying a new build property after all.

Shared Ownership Mortgages

A shared ownership scheme is where you only purchase a share of a property, you live in the property and pay rent on the remaining share. When you are able to, you can continue to 'Staircase' and buy the remaining shares. Key features:

• You can buy between 10% and 75% of the property
• You are able to sell your share back to the developer or on the secondary market
• You only pay a deposit on the share you are purchasing
• Only properties that have been built specifically for shared ownership can be purchased as a shared ownership home
• Once purchased, you the owner will be a leaseholder, not a freeholder. Freehold remains with the developer or housing association
• Rent paid is discounted based on the percentage amount of share you own
• The rental amount you pay needs to be declared as an expense you have on your mortgage affordability assessment

A developer will make it clear that properties are available for shared ownership. It is normally flagged as a scheme on property apps like Rightmove.

You will need to notify your mortgage adviser, to see how your AIP will change if you are looking at shared ownership. Your loan amount agreed may become less with shared ownership as you need to declare the rent as an expense in your affordability assessment.

New Build Mortgage Advice

When considering purchasing a new build home and securing a mortgage, it is crucial to seek professional advice. Consulting with a mortgage adviser who specialises in new build properties can provide valuable insights into the process. They can guide you through the intricacies of financing a new build, explain the various mortgage options available, and help you navigate the complexities of the application process. Their expertise can ensure you make informed decisions, understand the terms and conditions, and ultimately secure the most suitable mortgage for your new build home.