What are New build mortgages?
New build mortgages are mortgages given on new build properties.
New build mortgages may also refer to mortgages given on new build properties in line with the governments help to buy equity loan. With a new build mortgage you put down a 5% mortgage deposit and then the government lends you up to 40% for the property price for your mortgage deposit through the help to buy equity loan.
The government’s help to buy equity loan which you put towards your new build mortgage is interest-free for the first 5 years after which interest is charged at 1.75% per annum.
You will have to repay the help to buy equity loan every month as well as your mortgage which you currently repay from the fifth year.
The help to buy equity loan then rises by 1% plus RPI each year.
New build mortgages fit into a specialist mortgage bracket as not ever high street mortgage lender will provide a new build mortgage and this is why a new build mortgage broker may be best placed to assist you in ensuring you are able to secure a new build mortgage.
New build mortgages can be very complicated as they involve new build properties which:
- May be purchased off plan (hence it isn’t built yet, this could mean delays and a mortgage offer being withdrawn if the property isn’t built in time.)
- May be purchased by someone who bought an off-plan new build
- New builds tend to be overpriced and hence mortgage lenders may offer mortgages only on the property value and not the sale price. This could leave you with a deficit which you need to fill with your savings by increasing your mortgage deposit.
- New build mortgages have to be obtained whilst (or after) obtaining permission from the government’s help to buy scheme in order to ensure everything is done at the same time.
What should you take into consideration when seeking a new build mortgage?
New build mortgages can be complex or mort straightforward depending on the conditions below:
Your mortgage offer period:
When buying new build properties, you may buy one off plan which means they have not been built yet. You could get a mortgage offer for a new build property, complete the whole process but not complete on the home purchase.
This means you don’t legally own the home at this point but you have an existing mortgage offer.
Most mortgage lenders will make their offers available for a maximum of 6 months but there are now more specialist mortgage lenders who offer new build mortgages with an increased period for the mortgage offer( up to 12 months).
If your new build mortgage offer expires you might be able to get an extension or most mortgage lenders will require you make a new mortgage application.
This could mean all the fees you have incurred on your previous new build mortgage have gone to waste.
An experienced new build mortgage broker may have an idea of which property developers tend to deliver properties behind schedule and provide you with suitable mortgage lenders who are able to accommodate any delays.Reservation fees:
Your new build property developer will likely ask you to pay a reservation fee and if you don’t complete on the purchase in a given time you could end up losing your reservation fee. This could be between £300 to £1500 or even more depending on the property price.
The developers’ deadlines:
Some new build developers will place a deadline of 28 days from when you pay your deposit to when you should complete on the purchase. If you fail to complete within this time you may lose the property and any deposit you paid.
Most mortgage lenders may be able to complete within this timeframe but an experienced new build mortgage broker will ensure your case is being placed with the best mortgage lender available and in the best shape possible to ensure you arent declined or delayed in getting your new build mortgage.
Strict loan to value rates.
As new build properties tend to be overpriced at sale most new build mortgage lenders will restrict the loan to value (LTV) they could offer at 75% to prevent them suffering from any fall in prices beyond what they predict.
This could mean you will have to save a bigger mortgage deposit but if you are using the governments help to buy equity loan then you may be fine with a 20% help to buy equity loan.The above is especially true when considering a new build flat than a new build house. In this case, the government’s first-time buyer help to buy equity loan or shared ownership scheme may help.
New build developer freebies:
Some new build property developers will advertise freebies such as having your stamp duty or legal fees paid in a bid to differentiate them from other developers.
These offers are not so common any more but you may still be able to find one or two of them. Most of these freebies may not go towards your property price but rather add ons to incentivise you even more.
Mortgage lenders take into account and incentives a new build property developer may offer you and if this is more than 5% of the property price this could affect your mortgage as the mortgage lender will subtract the value of any incentive over 5% from your property price, this will mean you are borrowing more from the lender and will increase your Loan to value (LTV) and possibly your mortgage rates.
Some mortgage lenders may even refuse you a mortgage due to this as you go beyond the Loan to value (LTV) at which they are willing to lend.
Note: It is the amount that surpasses the 5% point which is knocked off the purchase price.
New build developer guarantees:
New build developers will offer a guarantee on the property and when seeking a new build mortgage the lender will want to see this guarantee especially if it is from a small developer. Most new builds will come with a ten-year [NHBC](http://www.nhbc.co.uk/Homeowners/WhatdoesBuildmarkcover/) certificate which guarantees the new build for ten years, but there are lots of alternatives including guarantee from the developer and the Zurich certificate.
Some new build mortgage lenders will not offer a new build mortgage on properties which have non-standard location characteristics.
With this in mind it can be more difficult to secure mortgages for flats in high rise blocks, or above/next to commercial properties, or in a predominantly owned ex-local authority area.
New build mortgage FAQs
Can I get a mortgage for a new build?
Yes, there are a lot of mortgage lenders who currently offer new build mortgages but as mentioned above there are a few things to consider and if you are using a new build mortgage broker they could assist you in ensuring you present the best case to the mortgage lender. Things such as getting a mortgage on an off-plan new build may make it more difficult but in general, you should be able to get a mortgage for a new build.
How much deposit is required for a new build house?
Most new build mortgage lenders will only loan up to 75% loan to value (LTV) but if you are able to qualify for the governments help to buy or shared ownership scheme you could put a 5% mortgage deposit down and in the case of the help to buy equity loan get a loan for up to 40% of the property price
Can you get a mortgage to buy land and build a house?
Yes, there are mortgages for land purchase but these are called construction loans or land mortgages.
You can use a land mortgage or construction loan to fund land purchase and new building development.
There are also self-build mortgages which will lend you money to buy land and build a house whilst making periodic repayments..
Do you need a bigger deposit for a new build?
In some cases, you may need a bigger mortgage deposit for a new build as most mortgage lenders will lend up to 75% Loan to value(LTV) due to new build properties typically being overpriced at the time of sale.
If you are eligible for the help to buy equity loan then you could use that to fund a bigger deposit for your new build.
How long does it take to build a house by yourself?
The length of building a house is completely dependant on how fast you could get planning permission, secure any funding you need to start the build and how the British weather fairs over your build period. It could take from between 8 – 36 months to build a house by yourself.
Can you get a new build mortgage as a self-employed borrower?
Getting a new build mortgage as a self-employed borrower is very possible but may be harder as mortgage lenders place more scrutiny on verifying the incomes of self-employed borrowers.
As a self-employed new build mortgage borrower, you will likely need at least 3 years worth of accounts but there are some mortgage lenders who may be willing to lend to you with just 12 months of accounts.
This may, however, limit the number of new build mortgages you may be able to access and leave you with non-competitive rates.
Can you get a new build mortgage with bad credit?
You may be able to get a new build mortgage with bad credit but you may find that you are limited to a smaller pool of mortgage lenders and that you may have non-competitive APRs.
If you have bad credit you should first look at trying to build credit and improve your mortgage affordability before applying for a new build mortgage.
With bad credit, a lot of mortgage lenders may as you to increase your mortgage deposit so they limit their exposure to you by offering you lower loan to value rates.
Bad credit could include:
A debt management plan
A home reposession
What government scheme could you use for a new build mortgage?
You may be able to use the below government schemes for your new build mortgage.
In the case of some of these government home buying schemes, you may be required to be a first-time buyer and this will mean signing a first-time buyer declaration
If you are not a first-time buyer there will also be schemes below which home movers are eligible for.
Lifetime ISA- gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
Help to buy ISA- gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
Right to buy- allows you to buy your home at a discount price.
Preserved right to buy- same as above.
Right to acquire- same as above.
You may also be able to use a host of mortgages with the help of your family.
They are a certain type of mortgage known as a family springboard mortgage, they include mortgages from lenders such as the Barclays family springboard mortgage, the lloyds lend a hand mortgage or the post office family link mortgage.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.