New Build Buy-To-Let Mortgages

Find out how to get a buy-to-let mortgage on a new build property.

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Home Buy To Let Mortgages New Build Buy-To-Let Mortgages
Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Nathan Porter

Reviewer: Nathan Porter

Independent Mortgage Advisor

Updated: March 15, 2024

How we reviewed this article:

Our experts continuously monitor changes in the financial space and work closely with qualified mortgage advisors for factual verification.

March 15, 2024

If you’re considering buying to let but you’re not interested in renovating a property and don’t want the hassle of ongoing maintenance, you might be thinking that a new build house or flat is the ideal solution.

It’s certainly an option, but there are a lot of pros and cons to weigh up before going ahead, not least the hurdles this could add to getting a mortgage. We’ll explain how to get the best deal on a buy-to-let mortgage for a new build rental property.

We’ll cover the following topics…

Can you get a buy-to-let mortgage on a new build property?

You can, but you should be prepared to have your application scrutinised far more closely than if you were buying an older property. Lenders consider these applications to be higher risk, because:

  • There’s no evidence that the property is attractive to tenants and will achieve the rent you’re hoping to charge
  • Newly built properties cost more than comparable older ones, so they are more vulnerable to downward trends in property values
  • If the home you’re buying isn’t yet complete there could be delays, which would leave you unable to generate a rental income from the property
  • Older properties are a lot more likely to have had their teething troubles – such as damp, subsidence and other issues – rectified

If you’re an experienced landlord who has successfully let properties in the past, you might find it easier to overcome these issues. It will also help if the property you’re hoping to buy is a house, as there is a higher lender appetite for these. New build flats, though, are another story.

What about new build flats?

Yes, it’s possible but potentially much more difficult than for a house. Several lenders simply don’t offer buy-to-let mortgages for flats at all, while others require a much higher deposit. Here are some of their concerns:

  • Flats are almost always leasehold, rather than freehold, and the lease may have strict conditions and terms related to the use of the flat
  • Flats require the payment of ground rent and a service charge on top of your mortgage, which makes your mortgage repayments less easily affordable
  • Flats are sometimes above commercial properties, which can affect their resale value as this location is less desirable to buyers
  • Flats are often in high-rise buildings or blocks with large numbers of units. That can expose the buyer to maintenance costs unrelated to their unit. Plus, the lender must take care not to lend on too many units in the same block, as it would increase the risk involved.

The size of deposit required to secure a buy-to-let mortgage on a new build flat is generally the main hurdle you’ll need to overcome.

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Advantages and disadvantages

Despite the difficulties already outlined, there are many good reasons why a newly built rental property might be right for you. However, there are also some potential drawbacks that you should also consider:

Advantages of New Build Rentals

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New builds typically have fewer maintenance issues in the first few years, so there’ll be less for you to do as a landlord and potentially less expense. They are usually covered by a 10-year warranty as well.

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Properties with newly finished kitchens and bathrooms, complete with brand new appliances, can be attractive to tenants

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New builds are usually more energy efficient, so the energy bills will be lower

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Property developers sometimes offer incentives to buyers, which can make the property more affordable

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If the property is complete, you’ll be buying chain-free, which might help you to generate a rental income quicker (though there are other factors involved)

Disadvantages of New Build Rentals

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When you buy a new build, you can usually expect some “snags” - small maintenance issues that have been overlooked in the design and need to be fixed

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Older properties are usually larger and more spacious than new builds, which many tenants prefer

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New build estates are often managed by private companies, rather than local councils, which can add to your costs and limit your freedom

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If you’re buying off-plan (i.e. the property isn’t complete), there can be delays that will impact your rental income

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While property prices usually trend upwards, newly built property prices don’t rise as quickly because there’s a premium for buying brand new. In the short term, the value could fall.

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The higher cost of buying a new build property instead of an older home will result in larger mortgage repayments and likely dilute the rental yield.

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How much would it cost?

Something you’ll need to consider before buying a new build home to let is whether the rental income will cover the mortgage repayments. Use our calculator to see how this could work out for you.

Buy-to-Let Mortgage Calculator

Our buy-to-let mortgage calculator can show you how much your mortgage could cost you each month and overall. Simply enter the rental property value, deposit, anticipated monthly rent, interest rate, mortgage term and our calculator will do the rest.

Enter the value of the rental property here
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A deposit of at least 20% is usually required for a buy-to-let mortgage
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Most lenders will require a deposit of at least 20%
Deposit must be less than the property value
Enter the anticipated monthly rent here
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Enter the mortgage rate, 5.5% is a typical rate currently but this can vary
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Enter the mortgage term, 25 years is the average but lenders can offer shorter and longer terms
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Borrowing

Loan to Value ratio (LTV):

Most lenders won't offer buy-to-let mortgages over a LTV of 80%.

Interest Cover Ratio (ICR):

Most lenders require rental income to be at least 125%-145% of the interest repayments for a buy-to-let mortgage.

Get started with a specialist buy-to-let broker to find out how much they could help you save on your monthly mortgage repayments.

How a buy-to-let broker can help

Speaking to a specialist in buy-to-let mortgages can help you to weigh up your options. They’ll provide:

  • Personalised advice. With all of the advantages and disadvantages we’ve discussed, it can be difficult to know what’s best for you. Getting input from an expert can save you from making the wrong decision.
  • Up-to-date information. We can provide information on rates and repayments at the time of writing, but the market is changing quickly so it’s best to speak to a broker to get the current picture.
  • Access to the best deals. If you have a very large deposit, you might easily find a good deal on a mortgage for a new build property. Otherwise, it’s best to get specialist help. There are still good rates available on mortgages with lower deposits, but you’ll have far fewer to choose from.

If you’d like to connect with a broker who specialises in buy-to-let, get in touch.

Eligibility criteria

As mentioned, the main difference in eligibility criteria for a new build buy-to-let mortgage is the size of deposit you’ll need. You’ll typically need at least 20% (although, with expert help, you might find a mortgage with a 15% deposit). If you’re buying a flat, it’s not uncommon for lenders to require as much as 40%.

If you receive a cash incentive or a value reduction from the developer when you buy the property, you’ll need to tell your lender about it, and this may affect the percentage of the property value that you can borrow.

Buy-to-let lenders will also look at the following factors:

  • Rental income. You might find it difficult to prove the rental income you expect to achieve for a new build property, but you can provide relevant data on the local market.
  • Other income. It can help if you have a high income from other sources, as this will balance concerns about how you’ll make your repayments if you struggle to let the property.
  • Experience. It’ll work in your favour if you have a lot of experience as a landlord or a portfolio of other properties.
  • Credit history. Although it’s still possible to get a buy-to-let mortgage with bad credit, applicants with good credit have a better chance. If you have had any credit issues, speaking to a broker with experience in this area before you apply is a shrewd move. .

If you’re buying a flat, there may be additional criteria for the property itself, for example:

  • Some lenders won’t lend on flats in blocks above four or five storeys
  • Some lenders require lift access for flats on higher floors
  • Some lenders don’t allow flats above commercial premises
  • Some lenders specify that ground rent and service charges must be reasonable and unlikely to increase
  • Some lenders specify that there must be no unfair financial penalties detailed in the lease

Lenders and rates

The lenders with the lowest deposit requirements include Kensington Mortgages and Vida Homeloans, although these mortgages will not necessarily be suitable for everyone’s circumstances.

The chart below shows the approximate number of lenders available to you based on your deposit size and whether you’re buying a new build flat or house:

15% deposit 20% deposit 25% deposit 30% deposit
Flat 2 lenders 10 lenders 45 lenders 60 lenders
House 5 lenders 25 lenders 60 lenders 70 lenders

To qualify for the best rates when buying a new build property, you’ll likely need a large deposit and plenty of experience as a landlord. The table below provides a good indication of the typical mortgage rates currently available.

Lender Product Details
Frosted Rates Image

Looking for more rates and deals?

We can match you with a mortgage broker who can provide you with up-to-date bespoke rates and deals from across the entire market.

Last updated May 2024

The rates quoted above were correct at the time of writing and are subject to change at any time at the lender’s discretion. Speaking to a mortgage broker is the best way to keep track of the rates available at any given time.

Can you get a buy-to-let mortgage if you’re a property developer?

Another type of product that allows you to let newly built properties is a build-to-let mortgage, which is sometimes also called a build-to-rent mortgage. It’s designed for developers rather than buyers.

With a build-to-let mortgage, you can finance a property development project from the ground up, then retain ownership of the finished properties and let them out. This provides an alternative to the more common exit strategy of selling the properties to repay the loan.

This is a niche area of property financing, and you would need support from a specialist. To find out more, read more in our guide to build to rent.

Speak to a buy-to-let broker experienced in new build properties

Whether you’re ready to look for mortgages or you’re still deciding if a newly built property is the right investment for you, speaking to a specialist can help. An expert’s view is valuable at every step along the journey.

We work with numerous buy-to-let specialists, many of whom have handled mortgages for new build properties in the past and can give you realistic and pragmatic insight. If you’d like to speak to one, give us a call on 0808 189 2301 or make an enquiry.

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We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in Buy-toLet mortgages for new builds.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for Online Mortgage Advisor of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

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