24 January 2023

What mortgages are available on new build homes?


What mortgages are available on new build homes?

What is a mortgage?

A mortgage is a loan taken out to buy a property, with most terms typically running for around 25-35 years.

The amount of money you can borrow is based on a variety of factors. We go into detail about this over on our 'Read All About It' section – read more about mortgages here.

Is securing a mortgage more strict for new-build homes?

You may find that you’re charged a higher interest rate for a mortgage on a new-build property compared to that of an older home. This is because lenders see these mortgages as riskier, due to the possibility that the value of the property may fall in its early years. This doesn’t always happen, but if it does – simply because the property is no longer ‘new’ – then the lender has less security for the loan it’s provided.

More often than not, the value of a new build property goes up during the building phase meaning you will have more equity in your home – which is great news! Unfortunately, there is still a chance that the value of your new home decreases during this phase (often related to the wider market and other economic factors), which could cause issues with securing your mortgage.

For this reason, lenders see mortgages on new build homes more risky – which sometimes leads to a larger deposit required than you would need for older properties.

Mortgage offers typically only last for around 6 months, so you may need to reapply for your loan if the build is taking longer than expected to complete. This could mean that your affordability will be reassessed again meaning you could find it more difficult to secure a deal. 

Building cover or new home warranty

Most mortgage lenders will require your developer to provide a recognised ten-year warranty on the property. Most established developers offer this as standard, and when you use our comparison service to find your dream new build home you can see what warranty each developer offers. You can read more about building cover here

Challenging timescale

Most house builders require buyers to exchange legal contracts within 28 days of reserving a new home. It is therefore advised that you acquire a mortgage agreement 'in principle' prior to making any offers on your new build home to ensure that you can meet this deadline. Failing to exchange in this time frame could lead to you forfeiting your reservation fee.

What is classed as a new build in relation to mortgages?

Mortgage providers' specific new-build lending criteria and deposit cost differs from lender to lender depending on how they define what is classed as a "new home." Some class homes built in the last two or three years as new, while others define a new home as one that has not been occupied at all. 

Limited mortgages per development

Lenders limit the amount of loans that they provide across any single development to around a quarter of the homes on each development. This makes it more difficult to borrow if the lender has already secured mortgages on other properties in the area. If you are buying one of the last plots on the site you may find it difficult to secure mortgage offer.

Larger deposit required 

To buy a new build home, you will usually need to have a deposit of at least 15% of the property's value to secure the loan. On a standard residential mortgage on older properties you typically only need a 10% deposit. To help cover this difference, there are government schemes in place to help first time buyers secure a home with a 5% deposit. 

Getting help with buying a new build property

There are a handful of Government backed schemes that help new build homeowners onto the property ladder. Some of these schemes include:

  • Deposit Unlock
  • Help to Buy
  • Right to Buy / Right to Acquire / House Sales Scheme
  • Shared / Co Ownership

For more detailed information on each of these schemes, please see our Read All About It page.

Are you ready to find your new build home? Begin your new build home comparison today.

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