Pete Mugleston | Mortgage AdvisorPete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.
Updated: 4th December 2019 *
New builds are popular with first time buyers (FTBs); not only is it exciting to be the first owners of a brand new home, there are a number of schemes available that offer financial assistance specifically for FTBs looking to get a mortgage on a new build.
So, what are these schemes? How do they work? Are you eligible, and what other factors can impact whether your application is approved or declined when getting a mortgage on a new build? Read on, where we’ll be covering:
As a means to tackle the national property shortage, the government has instructed the construction of 300,000 new-build homes a year until the mid 2020s. There are also several government mortgage schemes for new builds to incentivise the purchase, many of which are aimed at First time buyers to help them save money when buying their first home.
New builds can also be tempting as they are less likely to require much maintenance, especially in the early years. You may also save money on energy bills as new builds tend to be better insulated than resale properties. And as an added bonus, if you’re buying a new build off-plan some developers allow you to “personalise” your home by choosing certain design elements of the property.
Moreover, some new build developers will offer incentives such as Stamp Duty contributions and money towards your new home.
What schemes are available for FTBs getting a new-build mortgage?
There are a number of schemes to help first-time buyers get onto the property ladder by purchasing a new build home, including...
New-build Help to Buy: Equity Loan scheme
The Help to Buy for new build mortgage scheme encompasses a number of elements, the most popular of which is the HTB Equity Loan. This scheme allows you to buy a home with as little as 5% deposit saved, with the government providing an additional sum of up to 20% of the property’s value (40% in London).
This means that you have a far more desirable deposit of 25% (therefore giving you access to better interest rates), with a 75% mortgage making up the rest (55% in London). You can take advantage of the HTB Equity Loan as a first time buyer or current homeowner, but the property must be a new build costing under £600k.
At the point of completion, the purchase must own only one property.
You can read more about Help to Buy mortgages here.
New-build Help to Buy: ISA scheme
*UPDATE: The Help to Buy: ISA scheme is now closed to new applicants. However, first-time buyers can still save towards their first home with a Lifetime ISA. Read our guide for more information.
The HTB ISA is one of the best schemes to help save towards your first home, and can be used for new builds as well as resale properties. Once you’ve opened up the ISA, the government will boost your savings by 25%. So, for every £200 you save, the government adds a £50 bonus.
This scheme is open for each individual buyer, so if you’re planning a joint mortgage you could “save” and additional £6,000 from the government towards your first home together. This scheme is only available until 30th November 2019.
Help to Buy ISAs and equity loans can be used in conjunction with one another.
New-build Help to Buy: Shared Ownership mortgage scheme
HTB Shared Ownership is another government scheme offering financial assistance with your mortgage. It is primarily aimed at first time buyers, as well as lower income households.
Shared Ownership allows you to buy a share (usually 25% - 75%) of a new build or resale home. You then pay significantly reduced rent on the remaining share. Later on down the line, you have the option to buy bigger a share if you wish.
Social HomeBuy allows eligible tenants of registered providers who participate in the scheme and who occupy eligible properties, to purchase their social or affordable rented housing at discount - either outright, or on a shared ownership basis (see above).
Starter Homes scheme
This is a relatively new government scheme aimed at first-time buyers aged 23 - 40, which can potentially give you a minimum of 20% discount off a new-build property.
However, the value of the home must not exceed £250,000 (£450,000 in London), and you may not resell or rent out the property at its original market value until at least 5 years after the sale has completed.
Some banks offer mortgage packages specifically for first-time buyers with limited funds. Barclays “Family Springboard” mortgage scheme is one of the most popular, and can be used on new-builds and existing properties. The scheme allows the buyer’s relatives to contribute to their deposit.
Typically the buyer will need to save at least 5% of the property value, and the relative can add on top of this sum. While the requirements will vary based on your circumstances, boosting your deposit with this type of scheme may give you access to more mortgage providers and better rates.
Guarantor mortgage for a new-build
If you’re not eligible for any of the above schemes, a guarantor mortgage may be an option for you. This is when a friend or family member uses their own funds or home as security on your behalf.
Your guarantor will need to own their own property, or have enough equity in one to satisfy the lender. They will also need clean credit history and proof that they can afford your repayments, as well as their own outgoings, if you default.
What factors impact your ability to get a first time buyer mortgage on a new build?
Generally, the mortgage application process is very similar regardless of whether you’re purchasing new-build or resale. However, it can sometimes be more difficult to get a mortgage on a newly built home, usually concerning property loan to value (LTV) and provider lending caps on new builds (discussed below).
This is why it’s a good idea to approach a whole of market broker. With access to over 100 lenders, we can sort out the best mortgage deals to suit your needs as a first time buyer looking to purchase a new-build property.
Loan to Value
Why you should speak to a whole of market mortgage broker
We’ve helped over 120,000 people find the right mortgage, even those who may have been declined a mortgage or had bad credit history.
In fact, our customers consistently rate us 5 stars on Feefo, mainly due to our high levels of service, but also because we offer offers a 5-star service with access to expert brokers who are:
Whole of market.
Have a working relationship with all first time buyer lenders, not just a select few.
Already know the lenders to go to as they successfully arrange Help to Buy deals and first time buyer mortgages every day
OMA Accredited advisors.
Have completed a 12 module LIBF accredited training course.
Talk to a new-build mortgage expert today
If you like what you’re reading or require more information, call Online Mortgage Advisor on 0808 189 2301 or make an enquiry here.
Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee, and there’s no obligation or marks on your credit rating.
*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA.Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.
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 OMA of course!
Read more about Pete here...