For many buyers, purchasing a brand new property is their dream. Taking the keys to a brand new property means you can settle in from day one and you don’t need to worry about redecoration or refurbishment.
However, getting a mortgage on a new build property may not be quite as simple as you expect. Lenders have different criteria when it comes to new build houses and flats and so you might find it harder to get a mortgage then you anticipate.
So, what is a new build mortgage? How do you get a new build mortgage? And what factors will your mortgage lender consider when you’re buying a new home? Keep reading for answers to these questions and more.
Getting a new build mortgage could depend on the type of property you’re buying
“No two lenders' policies or deals are ever alike, and when it comes to newly built homes, buyers may need help finding the most suitable offer,” says mortgage expert David Hollingworth.
If you’re buying a brand new home, then the type of property will affect your choice of lenders.
For example, the sale of some new homes is restricted to local residents or ‘affordable housing’ buyers. This is Money reports that Barclays, Halifax and Leeds Building Society may consider lending on this type of home, but other lenders won’t.
The Post Office won’t agree your mortgage if the property is converted from an office, industrial site or local authority block, while Santander won’t lend on your property if it’s in a development that’s a mix of workplaces and homes.
If you’re buying a flat in a high-rise block, then you may also face restrictions. Many lenders will take a surveyor’s advice as to the likely resale value of such a property, while others won’t lend if your property is above a certain number of storeys.
Does your lender accept Help to Buy for a new build mortgage?
If you want to take advantage of the government’s Help to Buy scheme, then you may also find your choice of mortgage lender is restricted.
Some major lenders such as Barclays and Halifax will agree a high loan-to-value mortgage on a new build home through the scheme, but other lenders won’t. A Help to Buy mortgage broker may be able to help you find the right deal.
Make sure your lender can provide your mortgage offer quickly enough
When you’re buying a new build property you typically have just 28 days to exchange contracts. To exchange you must have a valid mortgage offer in place and so you need to find a lender that is able to produce your mortgage offer quickly.
Mortgage applications can take more than two weeks to process, so it’s vital that you factor this in when deciding which lender to use.
Some lenders offer a service commitment to buyers of new homes. For example, Kensington processes all new build cases through a specialist underwriting team. Applicants benefit from a ‘day one’ valuation instruction and a commitment for new case underwriting within 48 hours and offers within 21 days.
You may need a bigger deposit
If you’re buying a brand new property, then your lender may require a larger deposit than if you were buying a resale property.
Some lenders take the view that you are paying a premium for a new build property and, much like a new car, that the value decreases the moment you move in.
If you’re buying a new flat, then you may need an even bigger deposit. For example, NatWest requires at least a 25% deposit for most flats and 20% for houses. Clydesdale Bank requires a 20% deposit for flats but just 10% for houses.
Are you getting an incentive from the builder?
If you’re buying a new build home, then it’s possible that you will have received some sort of incentive from the builder or developer.
For example, your builder may be paying your Stamp Duty or contributing towards the cost of fixtures and fittings. In some cases, they may even be giving you a contribution towards the cost of the property.
Most lenders will accept this up to 5% of the value of the new home, although others will reduce the purchase price by the value of any incentive you are receiving. This can be an issue as it may reduce the amount you can borrow.
Here’s an example. If you’re buying a new home for £150,000 and looking to borrow 90% you’ll need a £135,000 mortgage.
If your builder is giving you a £5,000 incentive, your lender may knock this off the purchase price and only lend you 90% of £145,000 (£130,500). This reduces the amount you can borrow by £4,500.
Think about how long your mortgage offer will need to be valid for
If you’re buying a new property it may be months or even years before the property is completed.
Most purchase mortgage offers are valid for six months and so if it’s likely to take longer for your property to be built you need to ensure your lenders is likely to be prepared to extend your offer.
Some lenders may wish to re-underwrite your application when they come to extend your offer, which can be an issue if your income has changed during that time.
There are lenders, including Kensington, who include a six-month offer period as standard, in addition to a six-month extension period.
Steve Griffiths, Sales and Distribution Director, Kensington, says: “At Kensington, we think that new-build shouldn’t be limited to customers who meet the standard lending criteria. We’ve worked hard with our key new-build distributors since entering the Help to Buy market in 2017 to understand where customers are underserved within the current market.”
Is the guarantee acceptable to your mortgage lender?
When you buy a new property, you should check what type of guarantee you’re receiving from the builder and whether this is acceptable to your mortgage lender.
Most lenders will accept a 10 year NHBC certificate, but not all will take guarantees from a developer or the Zurich certificate.
Check with your lender that they are prepared to accept the guarantee you’re being given.