Mortgages For New Build Homes Explained: Advice & FAQs
What is a new build property?
Home buyers have many choices to make when searching for a property to buy. One of those choices is whether to choose from the UK’s existing older housing stock or a newly built property. There are many advantages to choosing a new property including lower maintenance costs, new builds are more energy efficient so energy bills are lower, greater customisation options, plus you are buying directly from the developer so there’s no chain.
There are two types of new build property:
- Properties built for the first time on a previously unused plot of land.
- Properties that have been redeveloped from a different use (e.g. a factory) into accommodation (flats) to be lived in for the first time.
At Simple Fast Mortgage, our team provides mortgages for new builds. If you’ve found a new build property to buy and need help arranging a mortgage we’ll be happy to help. Contact our friendly team to start your application today.
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What are the criteria for securing a new build mortgage?
The criteria for applying for a new build mortgage can be more strict compared to when purchasing other properties. Lending rules vary depending on the chosen lender who will carry out an assessment of your current circumstances. They want to ensure you can afford to repay the mortgage.
Some of the more common criteria we see with new build mortgages includes:
- Loan to value restrictions. – Some lenders may restrict how much you can borrow based on the value of the property. Different criteria will often apply depending on whether the property is a house or a flat.
- Definition of ‘new build’. The definition of what a new build is might vary between lenders. Lenders may require that the property will need to have been built less than 2 or 3 years ago.
- Deposit requirements. – You’ll typically need a higher deposit of around 15%. Our advisors can confirm exactly what deposit you will need and whether you are eligible for any discount schemes.
- Incentive limitations. – Some developers provide builders incentives to encourage you to buy with them. Lenders may wish to deduct some of these from the purchase price which can affect how much you can borrow. They also may have concerns if you are in receipt of high incentives.
- Builders warranties. – Your new build property should have a builder’s warranty to certify the work completed. There are lenders who will not accept all warranties and this can affect your chances of securing a mortgage.
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Typical timescales for new build mortgage
Builders and developers can often work to extremely tight time scales. With some new builds, you’ll sometimes just have a matter of weeks from paying the reservation fee to exchange contracts, otherwise you might incur penalties or risk losing the property. Securing mortgages for new builds can become challenging if you need the lender to move quickly. Our team can help as we know which lenders are most likely to offer you a mortgage within the timescales.
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When to apply for a mortgage on a new build
When you’ve found a property you wish to buy, our team will submit a mortgage agreement in principle. This confirms how much you can borrow and will allow you to put in an offer on your chosen property. With a new build, you’ll usually have to pay a reservation fee and may have just 28 days to exchange. During this time, you will need to submit a full mortgage application and arrange for the deposit to be transferred at ‘exchange’.
Lender mortgage offers are also only valid for a set period which varies based on the provider. These can be anywhere from 6-12 months, so this will be taken into consideration by our team. This ensures that if buying ‘off-plan’, your mortgage offer will still be valid once the works are finished.
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What is a mortgage agreement in principle?
Did you know you could apply for an Agreement in Principle (AIP) to get a fast mortgage decision? With an AIP you provide the lender a snapshot of your circumstances on which they can make a lending decision. The lender reviews information such as your income, commitments, property value and deposit size to decide how much to lend. As part of the assessment, the lender will also carry out a credit check, known as a ‘soft search’. This leaves less of a footprint on your credit file when compared to a mortgage application.
Lenders normally provide you with a fast decision for your AIP and if there are any issues these can be dealt with before you pay your reservation fee. An AIP is not property-specific so you can get one even if you haven’t settled on a property. It’s also important to note an AIP decision isn’t final and can change, especially if your information differs from that declared. If you are intending to buy a new build, getting an AIP can help speed up the mortgage process – ideal if you have a tight deadline. Contact our friendly team to arrange to submit your AIP.
Mortgages for new builds: Ways to get onto the property ladder
There are several schemes available to make purchasing a new build more affordable for prospective buyers.
Shared ownership, also known as ‘part rent, part buy’, helps buyers onto the property ladder by allowing them to purchase a share of a property and pay rent on the share they don’t own. Buyers can purchase between 10% and 75% of the property’s equity from the housing association or developer and then pay rent on the share they don’t own. A shared ownership mortgage will enable a borrower to buy a property and they can also increase their share of ownership over time through a process known as ‘staircasing’. Staircasing allows the homebuyer to purchase more equity until they own 100% of the property.
First homes scheme
The first homes scheme offers discounts on new builds for first time buyers in England. Buyers can get discounts of between 30 -50% off the purchase of a new build property if they are eligible. Eligibility varies depending on what criteria have been set by the local council. The council may prioritise essential workers, local residents, those on a low income and those who work in or who have family members in the armed forces. Other criteria do apply so it’s best to speak to our friendly team who can confirm whether you are eligible.
Deposit unlock scheme
Deposit unlock is a scheme that enables you to buy a new home with just a 5% deposit. The scheme was devised by developers in conjunction with a select group of lenders to make buying a new build home more affordable for first time buyers and home movers. Not all developers and only a few lenders have signed up for the scheme, so this is worth bearing in mind. For more information and to find out how to apply, contact our mortgage team.
Get expert advice on mortgages for new builds from Simple Fast Mortgage
If you are considering buying a new build home, it’s worth speaking to our experienced mortgage team. Our team provides expert advice on mortgages for new builds and can help you find the mortgage that is right for your circumstances. New build purchases often need to move fast and you often need a decision quickly in order to secure the property of your dreams. Our mortgage team will ensure that you can secure the mortgage that you need within the appropriate timescales. We also know which lenders offer the most flexibility when it comes to newly built homes, to improve your chances of mortgage success. If you want to take advantage of the available affordable home buyer schemes, our team can help. We’ll talk you through what is available to you and help you find a property and scheme that is appropriate for your circumstances.