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New Build Mortgages - Everything You Need to Know
When buying a newly built home in the UK, securing the right mortgage is crucial. New build mortgages, designed for properties that have been recently constructed or converted, come with specific features, benefits, and challenges.
To navigate this process confidently, you'll need to understand everything from deposit requirements to specialised schemes and warranties.
In this guide, we will cover all aspects of new build mortgages to help you make informed decisions.
In this blog:
Eligibility Criteria for New Build Mortgages
Deposit Requirements for New Build Mortgages
Mortgage Offer Validity Periods for New Build Properties
Challenges of New Build Mortgages
Special Mortgage Schemes for New Build Buyers
The New Build Mortgage Process
Why Choose Clifton Private Finance for Your New Build Mortgage?
What is a New Build Mortgage?
A new build mortgage is a specialised loan tailored for newly built properties or homes that have been refurbished within the past two years. While the structure resembles a traditional mortgage, lenders often impose stricter requirements due to potential risks like construction delays or concerns over the long-term value of the property.
Key Benefits of New Build Mortgages for UK Buyers
Energy Efficiency - New build homes are built to meet modern energy standards, which can reduce your utility bills, making them highly energy-efficient and eco-friendly. If you’re applying for a new build mortgage on an energy-efficient home, some lenders may offer a lower interest rate due to the anticipated lower household expenses. For example, a 0.2% reduction in your mortgage rate could save you around £500 a year on a £200,000 mortgage.
No Chain - You won’t have to worry about waiting for someone else to sell their home first. This chain-free buying process often speeds up your home purchase.
Let’s say you're purchasing a new build home that’s ready to move into. Because there’s no need to wait for the previous owner to find a new property, you could complete the purchase in as little as 6-8 weeks. In contrast, buying a pre-owned home might involve waiting for the current owner to sell their house, leading to potential delays of several months. This is especially helpful if you're moving for a job and need to settle in quickly.
Customisation - Buying early in the construction phase often allows you to select certain design elements, from floor plans to interior finishes.
Warranty Protection - Most new build properties come with a 10-year structural warranty, ensuring peace of mind for buyers by covering defects that may arise after you move in.
Eligibility Criteria for New Build Mortgages
To qualify for a new build mortgage, most lenders require the following:
- A minimum deposit of 15% for new build houses and 20-25% for flats
- Proof of a stable income and good credit history
- Agreement to purchase within the mortgage offer's validity period, usually 6-12 months
Deposit Requirements for New Build Mortgages
Deposits for new build properties tend to be higher than those for existing homes, reflecting lenders' caution regarding potential price depreciation. Here’s a breakdown of typical deposit requirements:
- New Build Houses - Expect a deposit of at least 15%. This can be reduced with government schemes like Help to Buy or Deposit Unlock, which offer up to 95% LTV (loan-to-value) mortgages, meaning you only need a 5% deposit.
- New Build Flats - Deposit requirements for new build flats are typically higher, ranging from 20-25%. Flats may carry higher risks for lenders due to potential fluctuations in value and leasehold complexities.
Understanding Loan-to-Value (LTV) Ratios
LTV is the ratio of the loan amount to the property's value. For new builds, LTV ratios are often lower than those for existing properties. Here's a general guideline:
- New Build Houses: Up to 85% LTV
- New Build Flats: Between 75% and 80% LTV
Some lenders could offer up to 95% LTV for both new build houses and flats, allowing you to get on the property ladder with a smaller deposit.
Mortgage Offer Validity Periods for New Build Properties
Given that new builds can experience construction delays, most lenders extend their mortgage offer validity periods for these properties.
- Standard Offers: Valid for up to 6 months
- Extended Offers: Some lenders provide offer periods of 9 to 12 months to accommodate delays.
Builder Incentives: A Key Benefit for Buyers
New build developers often offer buyer incentives, such as:
- Deposit Contributions: Some developers may contribute toward your deposit.
- Stamp Duty Relief: Developers may cover your Stamp Duty costs.
- Cashback Offers: A cash incentive after completion.
- Legal Fee Coverage: Some developers will pay for your legal fees.
Challenges of New Build Mortgages
While new build properties come with many benefits, there are a few challenges to consider:
- New Build Premium: Newly built homes are often priced higher than comparable older properties, which could affect their resale value.
- Snagging Issues: Minor defects or "snags" may need fixing after you move in. Make sure to inspect your new home thoroughly before completion.
- Limited Price Negotiation: Developers may have less flexibility in negotiating the purchase price than individual seller
Special Mortgage Schemes for New Build Buyers
Several mortgage schemes are specifically designed for new build buyers:
- Help to Buy: Offers an equity loan of up to 20% (40% in London) to assist first-time buyers. However, this scheme is ending soon in England.
- Shared Ownership: Allows you to buy a portion of the property while renting the remaining share.
- Deposit Unlock: A scheme designed to help buyers with just a 5% deposit, available through certain developers and lenders.
The New Build Mortgage Process
Initial Consultation
The first step in securing a new build mortgage is an in-depth consultation where we take the time to understand your financial situation, home preferences, and goals. During this conversation, we’ll also explore if you qualify for any government schemes or developer incentives, such as Help to Buy or Deposit Unlock, which could significantly reduce your upfront costs.
Lender Research
Once we’ve reviewed your financial circumstances and identified the type of new build property you’re interested in, we begin researching the best mortgage lenders for your needs. Unlike standard mortgages, new build mortgages can involve unique criteria, such as higher deposit requirements or longer offer validity periods due to construction timelines.
Mortgage Application
Once we've identified the best lender, we’ll guide you through the mortgage application process. This includes gathering essential documents such as proof of deposit, income verification (through payslips or bank statements), and any other information requested by the lender. We manage all the paperwork and submit the application on your behalf, ensuring it’s presented in the most favourable way to maximise your chances of approval.
Throughout this phase, we keep you informed of progress, working closely with both you and the lender to address any questions or additional requirements that may arise. Our goal is to make the process as smooth and stress-free as possible.
Completion
After your mortgage is approved, we coordinate the final stages of the process with your solicitor and the developer to ensure a smooth handover. This includes ensuring that all legal checks are completed, such as confirming the property has been built to required standards, and that the necessary funds are transferred to complete the purchase.
During this phase, we’ll liaise with all parties to ensure that any potential last-minute issues, such as construction delays or additional legal requirements, are addressed quickly and efficiently.
Why Choose Clifton Private Finance for Your New Build Mortgage?
Navigating the complexities of a new build mortgage can be challenging, but specialist brokers like Clifton Private Finance can make the process smoother. Here’s why you should consider working with us:
- Access to a wide range of lenders: We have access to mortgage deals from a broad panel of lenders who specialise in new builds.
- Expert negotiation: We can negotiate on your behalf to secure favourable rates and terms.
- Tailored advice: We offer personalised advice to suit your financial situation and property needs.
Get Expert Help with New Build Mortgages at Clifton Private Finance
New build mortgages offer a fantastic opportunity to own a modern, energy-efficient home, but they also come with unique challenges. At Clifton Private Finance, we specialise in helping buyers secure the best mortgage deals tailored to their specific needs.
