Getting a New Build Buy-To-Let Mortgage

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

It’s certainly an option, but there are many pros and cons to consider before proceeding, 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 much more likely to have had teething troubles, including damp, subsidence, and other issues.

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 it is much more difficult than a house. Several lenders don’t offer buy-to-let mortgages for flats, 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 many units. This can expose the buyer to maintenance costs unrelated to their unit. The lender must also be careful not to lend on too many units in the same block, as it would increase the risk involved.

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

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:

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.

How a buy-to-let broker can help

Speaking to a buy-to-let mortgage specialist can help you weigh up your options.

They’ll provide:

• Personalised advice: With all of the advantages and disadvantages we’ve discussed, knowing what’s best for you can be difficult. 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 changes 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. Good rates are still 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 the 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%.

Suppose you receive a cash incentive or a value reduction from the developer when you buy the property. In that case, 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: Having a high income from other sources can help, 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 getting a buy-to-let mortgage with bad credit is still possible, 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

Kensington Mortgages and Vida Homeloans are the lenders with the lowest deposit requirements, although these mortgages are not necessarily 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:

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.

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

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, call 0330 818 7026 or make an enquiry.