New Build Mortgage

Michael Webb talks us through new build mortgages.

Is it hard to get a mortgage for a new build?

It’s no harder than getting a mortgage for any other property. The process for underwriting is exactly the same – you need proof of income, proof of expenditure from bank statements and credit worthiness. 

There can be a few differences with a new build because obviously the property may not be completed, which is common because people can buy off plan. They may buy today and the build slot isn’t due to be completed until the end of the year. That property may well be valued off plan too. 

There’s also a need for a CML form, from the Council of Mortgage Lenders, which the property developer will complete. It will outline all the details of the build, the warranty it has and any incentives on the transaction that the lenders need to be aware of. 

There are also some differences with regards to mortgage offers. New build mortgage offers are usually longer. Typically you get a six month mortgage offer, and then lenders that are very comfortable with new builds will allow for extensions on that offer, where it can be extended up to one year. At that point the lender may ask for a payslip to check you’re still employed, or they might look at everything: three payslips, bank statements and a credit check just to make sure nothing’s changed. 

Buyers do need to be aware that if you’re buying a new build that won’t complete within that mortgage offer timeframe, you can’t do things that will jeopardise it. Typically you will be asked to exchange within 28 days, which ties you into buying long before the property is built.

If your mortgage offer is pulled because you’ve changed your circumstances in the background, that leaves you in a bit of a sticky situation.

How long does the new build application process take?

It will take a similar amount of time as a standard mortgage application – around a week to get a mortgage offer and six weeks as an average overall. The time is dependent on access for surveys and how busy lenders are. Those times have been getting closer to a week or two rather than 6 to 8 weeks – they stretched out to four months in 2022 but it’s calmed down a bit now. 

Getting your mortgage offer won’t take a great deal of time. Typically the house will take a lot longer to build. There will probably be points where we need to review the situation for you throughout the build, to make sure you’re on the right mortgage, especially with the way the market’s going at the moment.

What deposit do I need? How much can I borrow on a new build?

You’ll need a minimum of 5% deposit and there are some schemes involved which we’ll come on to later. Different lenders will have different criteria, so that 5% is a starting point.  New build flats can need more deposit as they are deemed as a bit more risky. 

The more deposit you have, the better, because a 5% deposit gives you a really limited marketplace, because a new build is at a premium price. It should be an immaculately built, finished property. No one’s lived in it and the second you move in, it’s a house that’s been used. 

In the short term you would struggle to resell it for exactly what you paid for it, especially if they’re still selling identical, brand new ones on the site.That’s why the 5% mortgage market is quite restricted.

What incentives are there on a new build home?

There’s a 5% deposit new build scheme called Deposit Unlock – a brand new programme devised in collaboration with lenders and the home building industry. It enables first time buyers and existing homeowners to purchase a new build home with a 5% deposit. 

It also provides customers with more competitively priced products than they would otherwise get. All the main builders are part of the scheme and there are a few participating lenders: Accord mortgages, Nationwide Building Society and Newcastle Building Society. 

What we’re seeing currently is that since Help to Buy finished, builders aren’t seeing the same volume of sales going through. The market was also much cheaper last year for interest rates, so there were huge surges in demand that have now dropped off. 

So builders are having to increase their incentives. You will find things like help with legal fees, help paying stamp duty, and sometimes cash back – usually in the form of additional deposit to reduce the lending, which banks prefer. So, for example, you could put in 5% individually, the builder gifts 5% to the equity and you can therefore get a 90% mortgage interest rate rather than a 95% rate. 

We’re also seeing a lot of new build marketing around help with utility bills and mortgage payments. That could give you additional money off of your mortgage, further deposit and things like that. Most lenders will want to see incentives capped at 5% of the value of the property. Anything more than that, they start to see it as a reduction of the property price.

Are there any other schemes available on new build properties?

We’re seeing a large increase in shared ownership enquiries recently. That’s very common. These are great schemes where you can buy anywhere between 25% and 75% of the property initially, and in most cases, you have the ability to staircase up to own more of the property over time.

Other regional low-cost housing schemes allow you to buy the property at a lower percentage of its value. It’s a bit like Help to Buy but without the option to buy that ‘golden share’. You buy 80% of the property and the housing association or company holds the other 20%, and you can only ever sell on your 80%. That keeps properties effectively more affordable and in the local market. There are lots of schemes that are worth investigating.