Getting a Mortgage To Buy an Off-Plan Property
Find out how to get a mortgage if you’re buying an off-plan property.
Is the property of Non-Standard Construction?
Author: Pete Mugleston
CeMAP Mortgage Advisor, MD
Reviewed by: Jon Nixon
Former Director of Distribution
Buying an off-plan property comes with many advantages, but it can affect your options for a mortgage.
Here, we look at how to get a mortgage if you’re buying off plan and how a broker can help in these situations. We also identify the specific eligibility criteria involved and whether you need to pay stamp duty.
In this article:
- Can you get a mortgage for an off plan property?
- What are the benefits and disadvantages of buying off plan?
- How a broker can help
- Which lenders offer mortgages for off plan properties?
- What specific eligibility criteria is involved?
- Do you pay stamp duty for an off plan property?
- Can you buy an off plan property with the shared ownership scheme?
- Speak to a broker
- FAQs
Can you get a mortgage for an off-plan property?
Yes, you can. You’ll need to meet a number of lending criteria to be approved, and how much you can borrow will be determined by two main factors – your income and outgoings.
Buying a property off-plan means purchasing it before it has been finished. It’s possible to do this by looking at the developer’s plans, which detail square footage and room layouts.
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What are the benefits and disadvantages of buying off-plan?
Buying off plan can be great in some situations, but it can also come with some potential downsides, such as:
Benefits
Guarantees - many new builds come with a guarantee for the property. Sometimes they’re up to 10 years long. It means that should anything go wrong with the building, you are covered for any work required.
Newly decorated - The majority of new builds are decorated in neutral tones to appeal to a wider range of buyers so everything will be brand new when moving in.
Your own specification - You may have to pay more, but some new developments finish a home to the purchaser’s specification. It means you can pick out fittings and fixtures from the start, so you further reduce any need to do any decorating.
Developer discounts - Discounts are often offered by developers off plan which can be anything up to 5% or agreeing to pay stamp duty.
Disadvantages
Delays - One of the biggest risks is if developers don’t stick to their timetable. It means your move-in date could be indefinitely delayed.
Mortgage agreement expiration dates - Other than the stress of having a move date consistently delayed, the building work taking longer can mean your mortgage offer runs out. It may mean you have to reapply.
Fewer mortgage provider options - Not all providers are happy to lend on properties that are off-plan. It may mean you are forced to accept a mortgage offer with worse terms than you had hoped.
Restrictive covenants - Developers are increasingly putting restrictive covenants into their property deeds. Restrictive covenants can prevent you from doing many things in the future with your property, like extending. Or, sometimes, it can mean you have to pay the developer for permission to extend or renovate your home.
Depreciation - New builds often depreciate in value as soon as you move in. They’re often on large mass development projects, so when you’re in, your home loses its appeal in comparison to the rest of the brand new properties in the same area. That being said, given the right market conditions, your property price could increase between when you reserve it with your developer and when you move.
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How a broker can help when you buy off plan
When it comes to buying off plan, lenders are often more hesitant to offer their lowest interest rates. To maximise your chances of securing a mortgage with the most favourable terms, you should enlist the help of a broker.
Experienced brokers will know which developers offer the best incentives – like paying your stamp duty, for example – so that you can increase your deposit instead, strengthening your position for your application. With a higher deposit, you may be able to secure a mortgage with a lower interest rate, thus making your repayments cheaper.
The brokers we work with already have experience arranging mortgages for off-plan properties. Contact us today so we can connect you to an expert in this field.
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Which lenders offer mortgages for off-plan properties?
Several well-known lenders, such as Barclays, TSB, Natwest, and Halifax, would potentially consider an application for a new-build purchase off plan.
Some may impose certain conditions before agreeing to the home loan. For example, the Family Building Society won’t lend on new-build flats, and many require the property to be revalued at completion.
HSBC asserts that it won’t release funds until the property has been completed. So even if you are eligible for some products, their specific terms and conditions may make them unsuitable.
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What specific eligibility criteria is involved?
All lenders have different approaches to assessing a person’s eligibility for a mortgage. That means looking at a person’s deposit, employment type, age, and credit history—among other lender-specific demands.
When it comes to off-plan mortgages, lenders will likely also want to confirm that your purchase price is fair. They’ll arrange for a mortgage valuation on the property when they offer the mortgage and when the property is completed. If the property value changes, this could affect your offer and your ability to complete it, so there is the risk of losing your deposit. Your deposit is usually paid when you’ve been approved for a mortgage in principle. This deposit secures your property with the developer.
The other issue to remember is that your mortgage offer may only be for a set amount of time—often six months. If your house hasn’t been completed by then, you may have to reapply and be subject to another eligibility assessment with your chosen lender.
How will the property type affect a mortgage application?
The type of property can affect the perceived risk for mortgage providers. For example, non-standard construction builds can be more difficult to sell. That makes lenders less likely to extend you a mortgage as the perceived risk is higher.
When it comes to off-plan new builds, look out for properties that require expensive materials or maintenance. These may make a property harder to resell.
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Do you pay stamp duty?
Yes. You will need to pay stamp duty and any Land Registry charges for an off-plan property. Stamp duty is calculated based on the price you pay, not the market value.
Use our calculator below to see how this may work out for you based on the off-plan property you want to buy:
Stamp Duty Calculator
This calculator can tell you how much Stamp Duty Land Tax you will need to pay on your property purchase, whether you're a first-time buyer, a home-mover or in the market for an investment property.
Your stamp duty to pay is:
Your effective tax rate is
Now that you've worked out how much stamp duty is payable, it's a good idea to talk to a broker about your mortgage options. Their knowledge and expertise can help you make sure you aren't paying over the odds with all costs and fees factored in.
Can you use the shared ownership scheme?
Yes, this is possible. It can make getting on the property ladder easier as shared ownership schemes would mean you need a lower mortgage, so the number of providers available may increase. As a result, you can choose a product with a lower interest rate, making your repayments cheaper, too.
However, you’ll need a plan for how to purchase the rest of the property or what you will do when you come to sell your home.
Speak to a broker experienced in off-plan mortgages
Buying off plan can be a great opportunity for many, but getting a mortgage can prove more difficult. Speaking to a broker can be a great idea as they will have specialist knowledge on who to approach, given your situation.
Our broker matching service can connect you with the best mortgage advisor for your off-plan buying needs. Call us today on 0330 818 7026 or make an enquiry so we can arrange for a broker to speak with you.
Speak to an expert
Maximise your chance of approval with a broker who specialises in getting a mortgage for off plan properties
FAQs
Technically speaking, you could avoid paying stamp duty if you buy the property off plan but sell it before the property is finished. However, if that is your plan, it comes with the risk that you may not be able to sell it in time for completion day, at this point, you become liable for stamp duty tax.
If you want to buy a property off plan and then sell the contract before it is completed, you’ll need an off-plan assignment mortgage. Some of the brokers we work with have experience in this area, so it’s well worth getting in touch for a chat if you’re looking to pursue this route.
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Pete Mugleston
CeMAP Mortgage Advisor, MD
Pete, a CeMAP-qualified mortgage advisor and 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 successfully went the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained and 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!
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