New Build Mortgages
If you are considering buying a new build home, it can be helpful to understand how the mortgage process works when compared to buying an older property.
For the most part the procedure of applying for a mortgage is the same for a new or an older property. Our guide looks at where some of the differences are and how, particularly for off-plan new builds, the home buyer journey is slightly different.
When you buy a new build house, you are getting a home that is brand new and has never been lived in before. This means that it will have been built using modern materials and it will be ready to move into straight away.
The process of buying a new build house is different to buying an existing property, and there are a few things you need to be aware of.
Below we explain the key steps involved in purchasing a new build home.
What is a new build property?
No this is not a trick question!
A new build property is a home that has been built from scratch by a builder or developer. This means that the property will be brand new and will never have been lived in before.
We recognise new builds from new developments of houses or flats where 100 or so units are built over a period of years. As part of the build the developer creates new roads, common parts and landscaped areas.
A new build could also be a single house that has been built on an infill plot. These are gaps between existing properties that would be large enough for a property to be built upon. Most single infill plots that come onto the market were once part of somebody’s garden.
The other type of new-build property will include larger properties, or commercial buildings, that have been converted or substantially renovated, created new dwelling spaces.
What does off-plan mean?
Off-plan means that you are agreeing to buy a new build property before it has been substantially constructed.
This means that you will be purchasing the property based on plans and drawings, rather than being able to see the actual finished product.
Often you just get to view a muddy plot with a copy of the drawings!
It is obviously possible to buy a completed new build and many people will be able to view and walk around the property before they decide to buy. But developers prefer to get commitment for off plan properties as this helps their sales figures and keeps the bank happy.
One benefit of buying off-plan is that you could potentially get a discount on the property price. This is because developers often offer discounts to buyers who are willing to purchase a property before it has been built. You will also be able to choose the house style and position on the development from those plots that have yet to be sold.
Included fixtures and fittings
Many new builds will have certain fixtures and fittings included in the price.
The exact items will vary between each developer but could include; washing machine, dishwasher, flooring, kitchen finishes etc. These can often be good haggling opportunities for you.
As long as the property has not had these items installed already then you should be able to have a choice of finishes, colours or upgrades. This all depends on the builder and how keen you are to sign.
New build mortgages
A little bit of extra preparation, and time, is needed when applying for a new build mortgage.
If you are using a mortgage broker to help you (of course you are!) then they will be able to guide you through the different stages.
Lenders can be wary of new build properties.
Because the homes are brand new there’s generally no way of comparing the asking prices with other properties nearby. This is what a surveyor would normally look to do.
This means they can sometimes be quite conservative on the valuation, and may not agree with the price you have agreed to pay.
Occasionally they will determine that the price has reduced between agreeing to buy it and when it is fully built. That’s a tricky one.
The brokers we work with have access to a wide range of mortgage lenders for new builds, so if you wish to get a 90% LTV mortgage without borrowing from the Government, we can connect you with an independent mortgage broker who can offer competitive rates you won’t find on the high street.
Timescales
Mortgage lenders need to know that you are buying a newly built property as there is usually a long gap between exchange and completion.
When you are approved for a mortgage the lender will send you a mortgage offer, detailing all aspects of the loan. But this is normally only valid for six months. For some new builds this is not long enough and the mortgage offer would be in danger of expiring before the property has been built.
The majority of house builders will set a deadline for exchange of contracts. This is usually 28 days from the date that you reserve the plot. At the end of 28 days, you will need to have your mortgage offer so that contracts can be exchanged.
Your solicitor will not allow this to happen without a valid formal mortgage offer.
If you have a property to sell, everyone else in the chain will also need to be ready to exchange by the date specified.
Applying and then being approved for a mortgage within 28 days is ambitious. Mortgages are not usually setup that quickly.
You and your broker will need to do some work prior to you signing the purchase agreement with the builder. That’s the only way that a mortgage can be arranged so quickly and your mortgage adviser will need to source a lender that has the capacity to process it asap.
In terms of the mortgage you will have six months to complete on the purchase before it runs out so always ask How long does my mortgage offer last? Where you know that completion is achievable just after this time the lender may agree to a short extension. Most of the time you will be required to reapply for the mortgage and select interest rate products that are available at that time.
Your mortgage options
The actual choices you have available will depend on your lender. And the lender you go with will depend on how fast they are processing applications.
You need speed to meet the 28 day deadline.
In terms of repayment method you will have the normal interest only or repayment (capital & interest) options to choose from.
You should be able to have either a fixed rate or a tracker rate.
It may not be possible for your broker to get you the ‘best’ interest rate if that lender cannot process your mortgage fast enough.
Mortgage deposits
The first deposit you will need to pay is a reservation fee. This is payable when your offer for the property is accepted and you sign the agreement. Reservation fees are non-refundable and will be around £500-£2000, the amount paid will be deducted from the purchase price.
Buyers are usually asked to pay an exchange deposit of 10% of the purchase price of a new build upon exchange. This is paid to the developer’s solicitor.
Where your actual mortgage deposit is higher than 10% then it will be paid in two stages:
- 10% on exchange of contracts
- The balance shortly before legal completion
What’s the difference between a mortgage deposit and an exchange deposit?
Help to Buy
Help to Buy was a government scheme to help first-time buyers get a new build property with just a 5% deposit. You could borrow 20% of the purchase price (40% in London), interest-free for the first five years.
The scheme must be used to buy your main residence, and can’t be used to buy a second home or a buy-to-let property.
First launched on 1 April 2013 the Help to Buy scheme has now reached the end of it’s planned life.
Anyone wanting to purchase with a Help to Buy equity loan must have reserved their home before 31 October 2022 and completed by 31 March 2023.
CONTACT A MORTGAGE BROKER
If you are ready to take the next step then we can put you in touch with a fully qualified independent mortgage broker.
PROS
New build advantages
- Everything is brand new
- You will be the first owner
- Uses modern materials
- You may be able to choose some fixtures and fittings
- Certain items included in the price
- There’s no forward property chain
- Your home will be more energy efficient
- New builds come with a ten year warranty
- No decorating for a while!
CONS
New build disadvantages
- New builds cost a bit more
- They can be smaller than older homes
- An off plan purchase could be delayed
- The mortgage choice can be reduced
- The value could decrease before you complete
- You may have to wait a while to move in
- There could still be building works ongoing
The new build buying process
01
Finances
The first thing to do is speak with an independent mortgage adviser. They will ask questions about your income, expenses, savings etc and what mortgage you will need.
The amount of cash deposit you have can make a big difference to the choice of lenders and deals.
Your broker will be able to look at your affordability and then suggest some lenders that are a good fit. It’s probably a good idea to get an Agreement in Principle from your broker. This will be helpful when negotiating with the developer.
Property
It’s time to go house hunting! You will now know your price range and what is affordable for you.
Visit the new build developments to see what’s on offer. It is important to view the actual site rather than relying on visuals and online pictures.
Depending on how advanced the developer is there may, or may not, be any properties for you to see and go inside. There is normally a show home, setup for marketing purposes.
The show home tricks of the trade means that it will have lots of lights, mirrors, a lack of ‘stuff’, maybe a few internal doors are missing and possibly undersized furniture. (yes this really all happens).
If there is nothing for you to view then it may be prudent to return at a later date or perhaps there are other completed developments by the same builder that you could look around.
02
03
Make an offer
When you have made your decision it’s time to negotiate with the builder and then make an offer.
Remember that builders are there to sell houses and there are a few things you can do to get a great deal:
- Price – You can just go in and try to get the purchase price lowered
- Fixtures and fittings – Maybe you can get some upgrades, free of charge of course
- Flooring – Get the style you want or upgrade/change the type
- Stamp Duty – Rather than alter the price, some builders will be able to contribute towards your stamp duty bill
Reservation fee
When the purchase price is agreed you will need to sign a reservation agreement and then pay the reservation fee.
This will be £1000-£2000 and is non-refundable.
04
05
Solicitor
You will already have a solicitor ready to act for you.
Let them have details of the property, the developer and your mortgage broker.
They will be checking that the developer has the correct planning permissions and that the correct services are in place.
From the date of signing the reservation agreement you have 28 days to get the contracts drawn up, obtain a mortgage offer and then exchange contracts!
It’s mortgage time!
As you will have taken on board all of our suggestions, you will already have an independent mortgage broker working with you and possibly an AIP. Maybe they have already asked you for some ID and other documents to speed up the process.
Get on to your broker pronto as the mortgage application now needs to be submitted to your lender.
The lender will issue your mortgage offer once the property valuation has been carried out and the underwriting satisfactory. All of this needs to happen before the 28 day deadline.
Your mortgage offer will normally expire, or run out, after six months. Before this happens speak to the developer and then your mortgage broker to get an updated timeline. It may then be possible to get the offer extended.
06
07
Exchange of contracts
To keep within the reservation agreement you need to exchange contracts within 28 days. This is something that only your solicitor or conveyancer can do.
You will not be able to exchange without a suitable offer of a mortgage.
When buying a normal property it is common to exchange contracts and then arrange for completion to take place a few weeks later.
Remember that your exchange deposit needs to be paid at this point.
The process is almost the same when buying a new build, it’s just that the ‘few weeks later’ will be a few months later or possibly a year later. It just depends how long it takes for your new property to be ready to move in to.
During that time you are still committed to purchasing the property.
Completion
Some months later completion will take place and you become the owner!
Just prior to this date your solicitor will request the mortgage funds from your lender and will also ask you for any deposit monies that have yet to be paid.
Make sure that your buildings and contents insurance and life insurance is in place.
While this is a very exciting time for everyone involved it is a good idea to visit the property and carefully look around for any issues; unfinished work, leaks, poor quality workmanship or damaged items. Report these immediately to the builder.
Time to get the keys, move in and enjoy your new home!
08
What is snagging?
Quite simply, snagging is the process of checking a newly built property for any defects or unfinished work that needs to be rectified by the builder.
It is advisable to appoint an independent professional to carry out a snagging survey before you move in, as they will know exactly what to look for.
A snagging list will usually cover items such as loose wires, cracks in walls, chipped paintwork and faulty plumbing.
However, it is important to remember that a certain amount of ‘snagging’ is to be expected in any new build property – after all, it is a construction site! – so don’t be too disheartened if your list is a little longer than you anticipated.
The important thing is that any issues are fixed before you move in, so that you can start enjoying your new home from day one.
If you’re buying a new build property in the UK, snagging is an essential part of the process. With a little bit of forward planning, you can ensure that your new home is perfect from the moment you step over the threshold.
The developer wants me to use their mortgage broker?
You shouldn’t feel obliged or pressured into using any particular company. Whoever you do choose, make sure that they are experienced and have access to the whole of the mortgage market.
Hey wait. That’s what our brokers do!
Let us introduce you to a specialist adviser for expert advice concerning new build mortgages.
Can you haggle over the price?
Of course. The builders are there to sell houses and there is always some wriggle room.
Make yourself a strong buyer; have a mortgage AIP in place, your property should be on the market, have a solicitor and mortgage broker lined up.
If you can’t get what you want from the price then try to negotiate on fittings or extras. Perhaps upgrading some internal items. It may also be possible for the builder to contribute towards your stamp duty bill.
Are new builds more expensive?
Yes, new build properties do come with a premium attached to their price. It is often very difficult to make a fair comparison against existing property stock.
But a new build house will be; new, unused, energy efficient, high quality and covered by a warranty. So there are significant advantages despite the higher price.
Make sure you know the local prices and never commit to a price you can’t afford.
How do I find a lender that can work fast?
It is a fact that not all lenders are a suitable choice for new build mortgages. Primarily because they are not setup to work to the 28 day exchange deadline.
An independent mortgage broker will be able to search for the best mortgage and with a lender who has the capacity to work fast. Lenders processing teams can get overloaded from time to time and a mortgage broker will be able to know this and find an alternative.
Can I take my existing mortgage to a new build property?
This is known as ‘porting’ and in theory this would be possible.
Porting a mortgage actually means taking the interest rate deal with you. Everything else can be changed.
Whether this is possible will depend on your lender and your own circumstances. We suggesting taking this through with a broker.
What is a new build warranty?
New build properties come with a 10 year warranty This is insurance backed and covers you for defects that arise due to faults in the design, workmanship or materials from when you take ownership.
There are three main providers of new home warranties; the National House-Building Council (NHBC), Local Authority Building Control Warranty (LABC) and Premier Guarantee. The NHBC Buildmark warranty is the mostly commonly used.
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