New Build Mortgages Explained

Buying a new-build property can be the perfect way to get on the property ladder. This guide will explain everything you need to know about new-build mortgages.

We’ll cover how to get a mortgage for a new-build property, which lenders offer them, and how a broker can help you navigate the process to secure the best deal for your circumstances.

You can find all our articles on this topic on our dedicated new-build mortgages page. If you’re a first-time buyer, you may also find our first-time buyer mortgages page helpful.

Are there specific mortgages for new build homes?

Yes, many lenders, including both high street names and specialists, offer new build mortgages.

These are products designed specifically for properties that have never been bought or lived in before. Different lenders have their own take on what constitutes a ‘new build’. Some will only consider recently constructed properties to be new builds, while other lenders will include ‘off-plan’ properties or properties that have been substantially renovated in their definition.

In this context, off-plan essentially refers to the property’s blueprint and potential ‘spec’.

Don’t confuse new build mortgages with self-build or construction mortgages, which are ideal if you’re building your own home but are entirely different products.

Deposit requirements

Lenders typically require larger deposits for new build homes than for standard properties. This is because the value of new homes can fall the moment someone lives in them, so the lender is taking on more risk.

If you buy a new build, you should expect to put down at least 15% of the property’s value (85% loan-to-value or LTV). Some lenders may even require as much as 20% or 25%.

This is significantly more than the 5%-10% (90%-95% LTV) offered on standard properties. 5% deposit mortgages are typically only allowable on houses, not flats. There may also be product restrictions for customers with a small deposit, such as a fixed period.

Be sure to check with your mortgage broker prior to applying, as lenders’ deposit requirements can change at any time based on market conditions.

How to get a new build mortgage

If you plan to apply for a new build home loan, here are a few essential steps you should take…

1. Check if you’re eligible for a home-buying scheme

If you don’t think you’ll be able to afford a large deposit, several schemes help prospective homeowners buy new-build properties with just a 5% deposit. We go into these schemes in more detail below.

2. Time your application carefully

If you’re buying ‘off plan’, think carefully about the timing of your application. If your developer overruns and there’s a delay in the build time, your mortgage offer could expire, meaning you’d have to start the entire application process again, and your lender may not guarantee the same terms.

New build mortgage offers tend to last longer than standard mortgage offers (9-12 months compared to 6 months), but not always. In some circumstances, you may only have 28 days to exchange. So, if you’re buying off plan, it’s worth checking how long your offer is valid.

3. Speak to a new build broker

It’s always worth seeking advice from an independent broker specialising in new-build mortgages. They’ll understand the complexities of buying this type of property and can give you customised advice and help you with your application.

They’ll also research the market on your behalf and find you the best deal to suit your circumstances. An experienced broker will likely have access to exclusive deals. If you’re buying off plan, you should be able to find a lender willing to offer a longer validity period.

Do you need to find a broker to help you with your new-build mortgage? Get in touch today, and we’ll match you with one of the specialists in our network.

Schemes you could consider

As mentioned above, there are several government mortgage schemes aimed at helping fledgling homeowners buy new build properties. Here’s a rundown of what’s available:

First Homes Scheme

This allows eligible first-time buyers to purchase new build properties with a discount of between 30% and 50% compared to the market prices of equivalent properties. The discount stays on the home forever, meaning every time it’s sold, the new buyer will benefit from it. To qualify, buyers must have a household income of less than £80,000 (or £90,000 in London).

The First Homes Scheme is open to people of any profession, but key workers are prioritised.

Shared ownership

Shared ownership lets you buy a share of a new build property and rent the remaining share from a council or housing association. If and when you can afford it, you can buy more shares in your home, known as staircasing. The more of the property you own, the less rent you pay.

Deposit Unlock Scheme

Developed by the Home Builders Federation, this scheme helps first-time buyers and home movers buy a new-build home with a deposit of just 5%. It helps to fill the gap left by the government’s Help to Buy scheme, which is now closed to new applicants.

Which lenders offer new-build mortgages?

When it comes to lenders, there are plenty to choose from. Many of the high street names have been known to offer new build mortgages, including Barclays, Halifax, and HSBC.

A number of lesser-known finance houses have also been known to offer these products, such as Virgin Money, Leeds, and Skipton Building Societies. Specialist lenders such as Kensington and Accord may also consider applications.

The fact there are so many lenders to choose from makes seeking advice from an experienced broker even more crucial. A broker can assess your circumstances and advise you on which lenders to approach and which to avoid, saving you both the time and expense of wasted applications.

Are there lenders who will mortgage a non-standard construction new build?

Potentially, all lenders have different criteria for non-standard construction properties.

Some may have rules that allow them to accept certain types of properties or materials, whereas others may not. Many will rely solely on the valuer’s comments.

Today’s best interest rates

The table below illustrates the best interest rates currently available for new build mortgages.

Please note that the above rates are for example purposes and are subject to change at the lender’s discretion. The best way to find the most up-to-date deals is to speak to a mortgage broker.

What is a typical LTV ratio for a new build property?

Some lenders are reluctant to lend larger amounts of money for new builds, so obtaining a loan for 100% of the property value may be difficult.

New buildings can be deemed more risky to lenders than older buildings because there is no record of property repairs.

This can make it difficult for lenders to establish whether the property will likely need costly repairs in the future, which could affect the homeowner’s ability to repay their mortgage.

Are there lenders who offer 90% LTV new build mortgages?

Most high street lenders will consider up to 90% for new-build properties (85% for flats). However, if you need to go with a specialist or subprime lender, you may find this restricted to 80% or even lower. In very rare circumstances, it may be possible to get a mortgage with no deposit for a new-build property. That being said, only a small handful of lenders may be willing to provide a 100% mortgage.

Why is the LTV rate for new builds lower?

New build properties are usually built to a quality standard and therefore have better energy efficiency than older homes. Despite this, getting a mortgage can be more difficult for one than for older properties.

The value of a new build property can quickly decrease, so some mortgage lenders are less willing to lend larger amounts of money for them.

This protects the lender against losing money if the borrower defaults on their mortgage and they have to repossess the property. If the property sells for much less than they loaned for, the lender will lose money.

New build properties that haven’t been built yet

Also, if the new home you wish to buy hasn’t been fully built yet, lenders might be more reluctant to lend to you.

This is because the property’s standard cannot be fully assessed, which makes it difficult for the lender to calculate how much they could resell it for in the event of repossession.

Additionally, if the property hasn’t yet been built, a surveyor cannot assess the risk of the property having faults that may need costly repairs.

Any unforeseen repairs could affect the borrower’s ability to pay their mortgage, which poses a risk to lenders. Because of this, many are reluctant to loan larger amounts for new builds and offer loan-to-value rates of 85%.

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

Yes, but lenders will view your application as a higher risk for several reasons, so you should expect to put down a reasonably hefty deposit (at least 20%- 25% of the property value).

The reasons include:

• You have no evidence that the property will be attractive to tenants and no idea how much rent you’ll be able to charge.
• The property’s value will likely fall as soon as someone starts living in it.
• If the property has yet to be built, there might be construction delays, which means you’ll be unable to generate rental income for a period of time.

A broker specialising in buy-to-let mortgages for new builds is best placed to help you secure a competitive deal that best suits your circumstances and requirements.

Is it harder to mortgage a new build flat?

Unfortunately, it can be difficult to find a lender who will provide a mortgage for a new build flat, and the lenders that will often only lend 85% of the property’s value.

This can be frustrating for buyers, especially as often there is a misconception that it will be easier to mortgage a flat rather than a house because they can be cheaper.

Even if a flat is cheaper than a house, lenders view new-build flats as more risky. This is because some flats can be harder to sell if the lender has to repossess the property to recover the money they loaned.

New builds are notoriously more difficult to sell, especially if there are still available new plots on the land on which they are built.

Therefore, a flat already lived in can appear less attractive to other buyers, making it harder for the lender to sell.

Will I be credit checked when I apply for a new build mortgage?

Yes. Credit checks are an unavoidable part of applying for a mortgage, as lenders want to assess the risk you pose as a borrower.

If you have ‘bad credit,’ some lenders may consider you a risk and reject your application.

That being said, the severity and date of your ‘bad credit’ can impact whether or not you are accepted or rejected by any given lender.

Some lenders may be happy with your ‘bad credit’, whereas others may not be so lenient.

In these cases, sometimes a larger deposit can improve the likelihood of acceptance and the range of lenders available.

What if you have bad credit?

It’s entirely possible to get approved for a new build mortgage with bad credit. You may, however, have to put down a larger deposit – anywhere between 15% and 30% – or, depending on the severity of your situation, go with a lender that specialises in helping people in this position.

Get matched with a broker who specialises in new build mortgages

Getting approved for a new build mortgage comes with its own set of obstacles so it’s a good idea to seek advice from a specialist broker who understands the intricacies of the new build market and who can guide you through the process.

Our broker matching service can connect you with an expert who can help you today. Call 0330 818 7026 or make an enquiry to get matched with a broker for a free initial conversation.