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New-build mortgages - What to consider

Every year more than 100,000 new homes join the UK property market. Many people actively seek to buy new-build homes – but what are the main things to consider on new-build mortgages?

What is a ‘new-build’ property?

The term ‘new-build’ describes a flat or house that has never been lived in. The buyer purchases the property from a housing developer, rather than the previous owner.

It’s common to buy off plan – which means you commit to buy the property before construction has finished. You can often get involved in the interior design of a new-build property, with the developer offering you a choice of fixtures, fittings, kitchen design and bathroom options. For this and various other reasons, new-build homes are a popular choice.

What are the benefits and drawbacks of new-build homes?

A popular benefit of a new-build is the idea that you are the first people to live in the home. It should not need any decoration or repairs. In theory, too, there shouldn’t be any maintenance costs in the first few years. New-build homes tend to be energy-efficient, too, which will keep utility bills down.

Among the drawbacks are that you can sometimes move into a home on a development that isn’t complete, where building work is continuing. There can also be snagging issues that need to be resolved.

It is commonly believed too that new-build homes don’t always hold their value and can be more difficult to mortgage.

Is it hard to get a mortgage on a new-build home?

Getting a mortgage for a new-build home can sometimes be tricky, because some lenders limit the mortgage amount.

For example, they might limit the Loan to Value (LTV) to 85% – meaning that you need to put down a 15% deposit. This limit can be even more strict on flats than on houses.

Another potential issue is that mortgage offers tend to be valid for six months, yet buying off plan can mean it takes longer to complete the build. Certain lenders will allow a longer offer period on a new-build mortgage. Talking to a mortgage broker like Mortgages by McAteer is a good way to avoid some of the pitfalls.

How much deposit will I need?

It is possible to purchase a new-build home with just a 5% deposit, but you will need an excellent credit rating and your choice of lenders will be limited. It is safer to save up 10% if you can. Generally, if you can put down an even larger deposit you’ll reduce the monthly repayments on your mortgage and get better mortgage rates.

How much can I borrow?

The amount you can borrow will be led by your income, your outgoings and various other factors, depending on the lender. The best way to get an accurate idea of how much you can borrow is to talk to us and get a mortgage Agreement in Principle.

Do mortgage lenders have strict criteria for new-builds?

Lenders do often set more narrow criteria on a new-build mortgage than on older properties. One example is that many providers will set a limit on the number of floors in an apartment building. Even if your flat is on ground level, too many floors could make the property ineligible for the loan.

You may also find that it is difficult to find a mortgage for a flat above a shop, bar or restaurant.

What schemes can help me buy a new-build?

The Government’s Help to Buy Equity Loan scheme is aimed exclusively at First Time Buyers on a new-build house or flat. The scheme means you can buy with a 5% deposit, which is boosted to 25% by a government loan. For those buying in London, the loan reaches 40% of the purchase price.

Shared Ownership is a way to part-buy, part-rent a home, and is offered on some new-build developments.

The new First Homes Scheme is a new option for First Time Buyers and offers a significant discount on the property price.

Can I part-exchange to buy a new build?

Some developers offer a part-exchange scheme, where you can use your current property as part payment. There are some restrictions, and you should check that you are offered a fair price for your older home.

How can Mortgages by McAteer help me with a mortgage for my new-build home?

Finding the right mortgage for a new-build home can be a challenge, especially as many lenders don’t offer products direct to customers. We will spend time looking at your situation and the home you want to buy, to find a suitable deal that will work for you.

We access dozens of lenders that are all listed with the financial services register, we compare the options and support you with the online mortgage application process. Let Mortgages by McAteer make it simple and stress-free to purchase your dream new-build home. 

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS. SOME BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.