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Mortgage on new construction

Find out how to get a mortgage on a new construction property here.

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: June 14, 2022

How to get a mortgage for new construction property

We get lots of enquiries from people who need a mortgage for the construction of a new home.

Many borrowers aim to build their own property with financing from a new construction loan, however, this can be daunting if this isn’t something you have done before.

The good news is that we work with specialist mortgage brokers across the UK, who have experience in arranging loans for new builds.

What is a construction loan?

A new construction loan allows a borrower to build a property from scratch. The loan is paid directly from the lender to the builder after each interval of work is completed.

Once the construction of the property ends, you will be expected to begin paying back your loan.

How does new home construction mortgage work?

When you find a builder to construct your home, they will outline how much money is needed to build your home. They will break down the overall cost into segments, based on each job/stage of the build.

Once each stage of the build is completed, an independent verifier will check that the work is finished so that the lender can pay your builder.

Some construction loan companies only require you to pay interest on the amount of money that is drawn out each month and then once the build is complete, you will begin to repay your loan.

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We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in all different mortgage subjects.

Ask us a question and we'll get the best expert to help.

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What is the difference between a new construction loan vs a normal mortgage?

A traditional residential mortgage is usually required for a borrower who wants to purchase a property that has already been built.

If you want to build a home from scratch on your own lot of land, then a new construction loan is usually a better option for most people.

New construction Loan

  • 20% – 40% down payment required
  • Must have specific building plans (including planning permission), construction contract, and cost estimate to apply
  • Loan disbursed in stages of build
  • Usually although not always issued by a bank
  • Mortgages for new construction can be more difficult to qualify for with fewer options available
  • Can be charged with a higher interest rate

Traditional mortgage

  • 5% – 40% deposit required (although this varies depending on your circumstances)
  • Loan issued by bank or mortgage lender
  • Can be easier to qualify for, and more options available (depending on your circumstances)
  • Typically charged with a lower interest rate than a construction loan

What is the process for a new home construction mortgage?

Find a broker who specialises in construction loans

Working with an experienced broker who has negotiated successful under construction mortgages previously can save you a lot of time. A lot of brokers claim to be whole of market but when it comes down to niche areas, they have no real experience.

This can unfortunately lead to misinformation and even result in borrowers being turned away for loans, simply because they have been advised incorrectly.

Talk to one of our dedicated support team and they can put you in touch with a broker that’s had real experience with new construction mortgages and is in the best position to help you.

Check your credit

Before you apply for any loan or mortgage, it can be really helpful to check your credit score with the various credit reference agencies (CRAs) so that you know what they can see then access your report.

This can prevent any surprises and help you establish if a lender would consider your application. Every lender is different when it comes to which CRA they use – some use Call credit, some Experian, some Equifax, so it’s a good idea to see how you’ve been scored on each of these.

Get your credit rating

Find out how much you can borrow

One of the expert brokers we work with can go through your finances with you, looking at your income and outgoings to assess how much you can afford to borrow.

They will also use your credit report to preempt how any given lender will assess your risk as a borrower. This is because some lenders see borrowers with bad credit or more complex financial situations as more of a risk and can therefore limit the amount they are willing to loan.

Your broker will look at your individual circumstances to determine how much you can borrow, which will allow them to estimate a figure as accurate as possible.

Getting this estimate before applying with a lender can save you money on application fees and can also prevent rejections on your credit file.

Talk to an advisor to find out more about how much you could borrow.

Get pre-approved

Once you know how much you can afford to borrow, your mortgage broker can recommend the best lender to approach.

The lender may look at your income, age, deposit size and credit history to calculate your affordability. If you pass their criteria checks, you can gain pre-approval for your loan.

Choose a builder

To find a qualified and reliable builder, read online reviews and check out their previous work in person.

Ask for quotes and narrow your list down to trusted local builders who have a reputation for completing work on time and within budget.

Once you have found a builder, ask them to draft a construction plan that includes all of the relevant details. It is also crucial that they sign a contract with beginning and end dates.

As well as this, when you apply for your loan, you’ll need the builder’s work history, insurance details, and blueprints including specifications and materials.

Apply for a new construction loan

Take your proposal to the lender that gives you the best rates for your financial situation (most likely the lender that has pre-approved your loan.

During this agreement and before you sign anything, you should be made aware about how much your repayments will be and the date that you are expected to pay them.

Your mortgage broker check and confirm these details for you and ensure that all documents are signed and sent to the correct authorities.

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How can I find the best mortgage rates for new construction loans?

The brokers we work with have access to new construction mortgage lenders across the UK and based on your circumstances and preferences, can find you the best rates.

We often speak to customers who have become confused or even disappointed after receiving a quote from an online new construction mortgage calculator. This is because these tools do not factor in many crucial details

The key to truly understanding the rate of interest you can expect to pay for a new construction mortgage loan, is to get the right advice for your situation.

Should I seek professional advice?

Yes. One of the qualified brokers we work with can make the process of finding a successful new construction mortgage so much easier.

They can take the time to understand exactly what you need and what you would like to achieve with your construction project to find and compare the best new construction mortgage options for you.

As well as this, an experienced specialist will know the new construction mortgage companies to approach which can speed up the process for you and help prevent unnecessary rejections on your credit file.

Speak to a new construction loans expert today

If you have questions about new construction loans or want to speak to an expert for the right advice, call Online Mortgage Advisor today 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 absolutely no obligation or marks on your credit rating.

Ask us a question

We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in new construction mortgages.

Ask us a question and we'll get the best expert to help.

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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

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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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