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Mortgage valuation on new builds

Get the right advice on new build valuation and find out how it could affect your mortgage application here.

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: May 25, 2022

If you are interested in getting a mortgage for a new build, you may have noticed that some lenders value new builds at less than the asking price of the developer.

With some lenders only prepared to lend a percentage of the market value, this can leave many buyers falling short of the property’s market price.

For many, this has resulted in additional loans or having to find extra cash in order for the sale to go through.

For the right advice on valuations for a new build, it’s best to speak to an expert who understands the current market and rates. Talk to an advisor for more information.

Why are mortgage valuations on new builds lower?

To put it simply, because most UK mortgage lenders see new build homes as higher risk than older properties and potentially more difficult to resell in the event of a repossession.

Why do lenders see new builds as risky?

To understand why mortgage lenders undervalue new builds, we need to look at why these properties can pose such a risk.

Despite new build homes being newly constructed and built with highly regulated and energy-efficient materials, they can depreciate in value very quickly and also be very difficult to resell.

This is important to a lender as if they have to repossess, they need to be able to make their money back from the loan.

Developers, at the end of the day, build new homes for one reason: to make money. Therefore, the land that they are built on is usually obtained for quite cheap, often because it’s undesirable. Reasons include but aren’t limited to, proximity to sewage plants, airports, railway lines or other sources of noise pollution, old mining areas and on old landfill sites.

Properties built over old mine shafts and on top of landfill sites have reported higher rates of subsidence which can pose structural risks to the properties themselves and make them harder to sell should the lender have to repossess them.

Why do new builds depreciate in value?

Trying to sell a property that is no longer “brand new” can be tricky, especially if the property is on a plot where there are still other new properties available.

Therefore, when comparing a property against new builds on the same site that are completely new, the initial property appears to be of less value.

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Why are new builds harder to resell?

As well as the risk of the property decreasing in value, lenders also have to factor in that new build properties can be notoriously more difficult to resell. Here’s why:

There might be competition from nearby new builds

If a property is next to or near an unpurchased house, it is unintentionally put in direct competition with the remaining brand new homes.

These often come with incentives such as Help to Buy, money off the purchase or a lower deposit which attract buyers. This can result in a former new build being overlooked.

New buyers might not want to live on a building site

Just because your property has been built and is ready to be lived in, it doesn’t mean that the rest of the development site is too.

This can be noisy, dusty and frustrating to live amongst so selling a property that is in close proximity to incomplete buildings can take longer.

Why do lenders ask for a mortgage valuation for a new build?

When a property developer builds a home, they will value the property based on:

  • Labour
  • Materials used
  • Prices of other properties in the area
  • The demand for new homes

From this, as well as many other factors, they will decide on a figure that they are prepared to sell the property at – this is what’s known as the market value.

However, sometimes, properties can be overvalued.

Because of this, lenders use an independent surveyor to check the house is worth what the developer says it is.

If the property is valued by the developer at a price that is too high, the lender has to loan more money and therefore there is a greater risk to them.

Why won’t lenders give higher valuations for new builds?

New builds are new. Yes, this may sound obvious but a property that hasn’t been around long can make it difficult for lenders to assess any potential faults that might occur in the future.

An older property will have a record of any work that has been carried out, so a lender can assess the risk and value the property with that in mind.

If a buyer purchases a new build and the building deteriorates over time or needs costly repairs, the homeowner will need to pay for the maintenance, making it difficult to keep up with mortgage payments.

This could result in mortgage defaults – which essentially leave the lender out of pocket.

As well as this, lenders also have to consider that the value of the new build property can decrease over time.

Here’s an example:

Let’s say a lender agrees to an LTV (loan to value) of 95% of the property’s market value which is £200,000. The borrower has a 5% deposit of £10,000 so they accept this offer and eventually move in.

After a year or so, they begin to struggle with their mortgage payments. Perhaps they have a new job with a lower salary, have had a baby, or are just having a financially difficult few months.

They are unable to pay their loan back to the lender and fall behind on their mortgage. After a while, the lender has to repossess the home and try to sell it to make the money back that they have loaned for the property.

However, since the property is no longer a new build (as it has been lived in) it has decreased in value.

The lender has it revalued and although it was bought for £200,000, it is now only worth £170,000. This leaves the lender with a substantial loss of £20,000 (as the buyer paid a 5% deposit of £10,000).

How could the valuation of a new build affect a buyer?

If the lender undervalues a property, it could leave a gap between the market price and the maximum loan that a buyer can get.

Because lenders view new builds as a higher risk, most are only prepared to offer an LTV of 85%.

This would mean that the buyer would need to finance the additional 15% of the property’s market value, which for many is a vast sum of money.

So, if the property has a market value of £200,000, the lender would provide a mortgage for £170,000 (85%) and the buyer would need a deposit of £30,000 (15%).

Are all lenders cautious of new builds?

There are mortgage lenders who have more of an appetite to lend for new build mortgages, so there may be lenders who can offer you a larger LTV than others, in the right circumstances.

As well as this, the amount you can borrow with any given lender can be affected by a number of factors including your credit historyproperty type and age.

Speak to an expert for more information on how to calculate your deposit size for a new build home.

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How can Online Mortgage Advisor help you?

We will introduce you to a new build specialist mortgage broker that can:

  • Negotiate the LTV of a new build with mortgage providers
  • Find lenders who will potentially accept you even in instances where you may have been rejected
  • Research mortgage offers from high-street lenders such as Natwest and Halifax as well as specialist lenders to ensure you get the best deal
  • Check that the terms and conditions of the mortgage are affordable and suitable for you to make sure you understand them before you proceed
  • Speak to an expert today

If you have questions about which mortgage surveys for new builds you should have carried out, or just want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry.

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 absolutely no obligation or marks on your credit rating.

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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 OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the 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 information 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.

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