While there are loads of great reasons to buy a new-build home, getting a mortgage sorted can be more complicated than with an older property. If you’re thinking of buying a new-build, but aren’t sure where to start with the mortgage, this guide is for you.
What is a new-build home?
Let’s rewind a bit and establish what a new-build home actually is. A new-build property is a property that has been newly built, or has been substantially renovated within the past two years and not sold within that time. Sometimes people buy a home that hasn’t even been built yet. This is known as an ‘off-plan’ home. Trying to secure a mortgage for an off-plan or new-build home can be a bit complex, but don’t worry. We’re here to guide you.
Benefits and drawbacks of a new-build
There are lots of benefits to buying a new-build property. In general, a new-build will be in better condition than an older house. This means that there will be less repairs and maintenance to be done, which will save you money. They also tend to be more energy efficient. With new-build properties you can also avoid delays in the sale process, such as property chains and can often choose what kind of appliances and fixtures you have installed in your home. New-build homes typically come with a 10-year warranty, which means you are protected if there are any issues with the building’s structure. Another great advantage of new-builds is that they are included in the Help-to-Buy government scheme.
Unfortunately, new-build homes do tend to be more expensive to buy than older properties and delay can occur if construction needs to be halted for whatever reason.
Mortgage lender criteria for new-builds
The mortgage lender criteria is stricter for new-builds than for existing properties. You may find that you are charged a higher interest rate for a new-build mortgage because lenders see these mortgages as riskier. This is because the value of your property may fall in the early years. While this doesn’t always happen, lenders tend to take a more cautious route.
If you buy an off-plan home, your mortgage offer will probably only last for six months. Therefore, if development takes longer, you will have to re-apply for your loan or ask to extend the validity period. If your financial circumstances have altered during this time, it could be harder for you to secure a deal.
Another complication that can arise is that even if the market value of your property increases or falls during construction, you will still have to pay the agreed original purchase price when it has completed. This has an impact on your mortgage, so make sure to discuss this matter with your lender.
Securing a mortgage
So, if you’re still keen on buying a new-build property it’s time to start thinking about how to secure your mortgage. The first thing you need to do is talk to a mortgage broker. They can help you to work out how much you can afford to borrow and the costs involved. They will also assess whether you are eligible for any schemes, such as the Help-to-Buy scheme. It is important that you let lenders know that you are buying a new-build, so that they can deal with any issues between exchange and completion.
Once you’ve found the home or plot you want to buy, you’ll submit an offer. To reserve a plot, you’ll need to put down a reservation fee deposit. At this point, in some cases you’ll only have 28 days before deposit and exchange, so you will need to get your mortgage secured as soon as possible.
A rough timeline
- Get in touch with a mortgage broker to work out how much you can borrow and which deals you could potentially benefit from.
- Begin the hunt for your dream new-build.
- Negotiate the price and incentives with the developer. Again, it is worth keeping your mortgage broker in the loop with this, so that they can double-check you can afford the final price.
- Pay the reservation fee to the developer. Then, take the reservation form to your mortgage broker and they will start looking for the best mortgage.
- Time to apply for the mortgage. Do not delay on this step, because the 28-day deadline begins on the day that you pay the reservation fee. Make sure you have all your documents on hand so that the process can run smoothly.
- A lender will issue a mortgage offer once a survey has been carried out by a solicitor and your application has been approved. You’ll then be ready to exchange, pay a deposit and set up a completion date. This will probably be when the building is finished.
We hope this guide helps you to understand a little more about new-build mortgages. While they can be more complicated to secure, if done correctly, you’ll have a beautiful new home to move into and enjoy!