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There are lots of good reasons to buy a new home but new build mortgages can throw up complications. We take a look at the issues you need to be aware of so you’re in the know from the word go.
New build mortgages are mortgages taken out on a new build home. Lenders will often consider a home to be a ‘new build’ if it has been built in the last two years.
You’ll often need a bigger deposit for new build mortgages than if you’re buying an older property. This is because mortgage lenders are often stricter on the amount they’ll lend on new builds to protect themselves from the risk of the property falling in value in the early years.
You may also need a bigger deposit if you’re buying a new build flat than a new build house.
However, there are some ways to get new build mortgages with a small deposit. For example, if you buy through the Deposit Unlock scheme you can buy a new build home from a participating builder with a 5% deposit – see below for more details.
There are a number of issues you’ll need to consider about new build mortgages, including:
When buying a new build home you’ll often only have 28 days to exchange contracts once you’ve reserved your property. This can be a challenge when it comes to getting new build mortgages because some lenders may struggle to complete your application within that time frame.
So it’s advisable to speak to a specialist new build mortgage broker to help you find the right lender.
Get fee free mortgage advice from our partners at L&C. Use the online mortgage finder or speak to an advisor today.
Mortgage offers usually only last for up to 6 months and this may cause problems if you’re buying a new build home off-plan and you complete after your mortgage offer expires. That’s because while you may be able to get the lender to extend your mortgage offer, in most cases your mortgage application will need to be re-assessed by starting your application over again.
If you can’t get a new mortgage offer, for example, because the value of the property has fallen since exchange, this could cause major problems because when you’re buying a new build you’ll usually be asked to sign a contract agreeing to buy the property at the current advertised price and to pay off the balance at completion.
And if you have to pull out of the purchase because you can’t get a mortgage, you’ll lose your deposit due to breach of contract. You may also be sued by the developer for the difference between the agreed price and the lower price it subsequently achieves at re-sale, as well as any legal fees incurred.
Recognising that many new build projects can be subject to delays, some lenders have special new build mortgages. These new build mortgages have a longer validity period that can be up to three months longer than their usual deadlines. Specialist new build mortgage brokers will know the products which will remain valid for longer. Mortgage brokers will also be on hand should you need to move quickly to re-apply or find an alternative lender.
Also, many experts urge buyers to establish if the contract price is ‘locked’ at exchange therefore and, if so, what happens if prices rise or fall before completion. So speak to your new build conveyancing solicitor about this.
And make sure your conveyancing solicitor writes a ‘long-stop’ completion date into your contract that falls before your mortgage offer expires. So if there’s a delay, it means you can walk away and get a full refund if the developer doesn’t complete your home by that date. Find out more in our guide New build conveyancing explained.
Get fee free mortgage advice from our partners at L&C. Use the online mortgage finder or speak to an advisor today.
Some housebuilders offer incentives such as having your stamp duty or legal fees paid in order to set their development apart from others.
A developer would much rather offer an incentive to make the new build premium price more palatable to buyers than reduce the purchase price overall.
However, mortgage lenders will take builder incentives into account when considering your new build mortgage application. If the incentive is worth up to 5% of the value of the property, there should be no issue.
But, if they exceed this point, there could be issues. A lender could still agree to a mortgage, but they may knock the amount that surpasses the 5% point off the purchase price. This can have a significant impact on your loan to value (LTV) and impact your mortgage rates. If you’re unsure about how an incentive could affect your mortgage application? Get free advice now
| Purchase Price | Incentive Value | Impact |
| £200,000 | £10,000 (5%) | None |
| £200,000 | £12,000 (6%) | Lenders may take £2,000 off the purchase price when assessing the mortgage |
| £200,000 | Non-cash, e.g. white goods | None |
So what is the new build mortgage process? Here are the steps you’ll need to follow…
Lenders will typically lend between 4 and 5 times your annual salary depending on your outgoings and credit history. Other income such as pensions, investments or earnings that fall outside your main salary will also be considered, as well as, the size of your deposit.
To find out instantly how much you may be able to borrow on your income, try our handy mortgage calculator. And for a more detailed look at how much you’ll be able to borrow on a new build mortgage it’s a good idea to speak to a fee-free mortgage broker.
When you’re buying a new build property, you’ll start paying the mortgage after you’ve completed, just like if you’re buying a non new build property.
There are a number of ways of getting new build mortgages with a small deposit including:
Deposit Unlock is a scheme developed by the Home Builders Federation to help first time buyers and home movers buy a new build home with a 5% deposit. However you can only buy a home from a house builder participating in Deposit Unlock and using one of the new build mortgages offered by a participating lender.
For information about Deposit Unlock, participating builders and mortgage lenders, see our advice guide Deposit Unlock explained.
If you want to buy a new build home and you only have a small deposit you may want to consider shared ownership. This is when buy a share of a property and pay rent on the remaining share. This means you need a smaller mortgage and therefore an smaller deposit. But there are pros and cons to this complicated scheme, so we’d always recommend buying on the open market if you can. Find out more in our guide on Shared Ownership.
The First Homes Scheme lets first time buyers buy a home for 30% to 50% less than its market value when you meet certain criteria (although qualifying properties are very scarce).
The Own New Rate Reducer scheme allows you to buy a new build home with a mortgage and pay a lower mortgage rate than if you buy on the open market with a traditional mortgage. When you choose your property, the developer will agree to contribute 3% or 5% of the purchase price. House builders do this as an incentive for you to buy their properties.
The developer’s contribution goes to your mortgage lender, via Own New. The lender will take the developer’s contribution of 3% or 5% and offset it against the mortgage interest to reduce your monthly payments for the first 2 or 5 years, depending on the length of your initial term. See our guide for more information on the Own New Rate Reducer scheme.
Own New also offers the Deposit Drop scheme, which lets people buy a new build home with a 5% deposit. It launched in the North East and Yorkshire in 2023, with plans to broaden out where it’s available in due course.
With new build mortgages, it’s a good idea to speak to a mortgage broker. Not only will it save you time because they’ll shop around for you but they often have access to deals that you won’t be able to find yourself. Plus they can be very helpful when it comes to arranging a new build mortgage.
There are clear benefits to buying a new build including:
But there are also some downsides:
If you’re getting a mortgage for a new build you’re buying, make sure you do your research starting with our guide on the Pros and Cons of New Build.
Yes it can be harder to get a mortgage for a new build. But it will depend on the lender’s lending criteria for new build mortgages. If you’re buying a new build it’s a good idea to speak to a fee-free mortgage broker. They know which lenders will be best suited to you and find you the best deal too.
Yes it’s possible to get 95% new build mortgages, such as if you use the Deposit Unlock scheme. But there may be other 95% new build mortgages options avaliable to you so it’s a good idea to speak to a fee-free mortgage broker to get the latest advice.
When you’re looking online you’ll find most property portals have a new build home filter you can search. For example, Zoopla have a search function dedicated to new builds.
A new build is a home that’s brand new and has never been lived in.
A building or structural warranty is essentially an insurance policy for newly built homes. It’s almost impossible to sell a home without one as all mortgage lenders require a 10 year structural warranty. Although it’s taken out by the builder or developer it is there to protect you, the buyer (and your mortgage lender). The type of warranty typically covers you for defects that arise due to faults in the design, workmanship or materials that remain undiscovered at the time of practical completion on your new build.
These policies are referred to by many different names, including New Home Warranties, New Build Warranties, Structural Warranties, Latent Defects Insurance and Inherent Defects Insurance. Find out more in our guide New home warranties: What they do and don’t cover.
Life insurance isn’t mandatory when taking out a mortgage to buy your new home but it can give financial security to your loved ones if you die while still having a mortgage to pay off. Find our more about life insurance options when taking out a mortgage.
HomeOwners Alliance Ltd is registered in England, company number 07861605. Information provided on HomeOwners Alliance is not intended as a recommendation or financial advice.
Mortgage service provided by London & Country Mortgages (L&C), Unit 26 (2.06), Newark Works, 2 Foundry Lane, Bath BA2 3GZ, authorised and regulated by the Financial Conduct Authority (FRN: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage.
HomeOwners Alliance Ltd is an Introducer Appointed Representative (IAR) of Seopa Ltd, for home insurance, authorised and regulated by the Financial Conduct Authority (FCA FRN: 313860).
HomeOwners Alliance Ltd is an Introducer Appointed Representative (IAR) of LifeSearch Limited, an Appointed Representative of LifeSearch Partners Ltd, authorised and regulated by the Financial Conduct Authority. (FRN: 656479).
Independent Financial Adviser service is provided by Unbiased, who match you to a fully regulated, independent financial adviser, with no charge to you for the referral.
Bridging Loan and specialist lending service provided by Chartwell Funding Limited, registered office 5 Badminton Court, Station Road, Yate, Bristol, BS37 5HZ, authorised and regulated by the Financial Conduct Authority (FRN: 458223). Your property may be repossessed if you do not keep up repayments on a mortgage or any debt secured on it.
