Excited about the prospect of buying a new build but not sure how to go about getting a mortgage to make it happen? Find out more about the factors you need to take into account below.
1. Upfront fees
When you buy a new build property, it is typical for developers to ask for a reservation fee to secure your plot. If you change your mind about the property later, or if the mortgage doesn’t complete on time, you could lose this fee.
The amount of deposit needed varies from case to case but new build houses and flats often require a 15% or 20% deposit. These can add up to a significant amount to put down upfront so you may decide to look for government help through the Help to Buy equity loan scheme. If you qualify for the scheme, the government could lend you up to 20% of the value of the new build property as long as you have a minimum 5% deposit and the property is worth no more than £600,000. If you do go down this route, make sure you factor the cost of repaying the loan into monthly outgoings in the future and speak to a mortgage adviser about how the scheme will impact upon your remortgage options in the future.
Typically, when buying a new build property, you will have 28 days in which to exchange legal contracts and you must have a valid mortgage offer in place by this time. As a rule, mortgage applications take between 2 to 4 weeks to be processed so it is important that timescales are factored in when considering suitable mortgage lenders. If you’re using a mortgage broker, make sure you choose one who can advise you on the best lender to opt for who will stick to these timescales.
4. Valid mortgage offers
Mortgage offers are usually valid for 6 months on purchases but sometimes it can take longer than this for the property to be built. Lenders can extend their offer but will want to recheck the case and might decide not to if circumstances such as income have changed.
5. Building guarantee
Lenders check upfront what kind of guarantee comes with the new build property and need to be happy with that guarantee before they will offer a mortgage. Many new build properties will come with a ten year NHBC certificate which guarantees the build for ten years but there are lots of alternatives including a guarantee from the developer and the Zurich certificate but it’s important there is some kind of guarantee in place. Generally, with the larger developers, this is fine. Sometimes, when very small developers are involved, they will issue their own guarantee which is acceptable but it’s important this is checked by the lender upfront to make sure they are comfortable with it.
6. Builder incentives
Often when buying a new build property incentives are thrown in to sweeten the deal. This can be anything from the developer helping with stamp duty or including fixtures and fittings. Typically, mortgage lenders are comfortable with this up to the value of 5% of the property but some will deduct this from the purchase price and so reduce the amount they can lend for the property itself.
7. Property characteristics
When making the decision about whether to offer a mortgage or not, lenders consider the potential re-sale of the property and the appetite of others to buy it in the future. For this reason, it can be more difficult to secure mortgages for flats in high rise blocks, above or next to commercial properties or in a predominantly owned ex local authority area. Every property is considered on a case by case basis however and an experienced broker will know which lenders tend to lend on properties with particular characteristics.
For advice tailored to meet your specific needs call 02380 642 018 and speak to one of our completely impartial mortgage brokers now, or use our contact form and we will call you back.