If you’re considering whether to buy a new build home, then it’s in your best interests to understand your loan options – especially new build mortgages.
Find out from Eaton Homes just how they work, whether you can get one, and what to watch out for.
What is a new build mortgage?
A new build mortgage is simply a residential loan taken out on a new build property.
These mortgages are specially designed to help holders purchase newly constructed homes as well as those that have been substantially renovated or converted but never occupied.
How do new build mortgages work?
These mortgages work in a similar way to standard mortgages, but they also recognise the specific risks related to buying a new build, such as navigating developer timelines for off-plan properties.
New build mortgage lenders can offer prospective buyers:
- Access to exclusive incentives
- Specialised terms, such as higher loan-to-value (LTV) ratios or lower interest rates
- Support with leveraging relevant government schemes and incentives
- Extended application validity periods to accommodate new build timelines
To learn more about how new build mortgages work, we recommend speaking directly to an advisor or lender.
Alternatively, you can also keep reading to discover the general new build mortgage process.
An overview of the new build mortgage process
A typical new build mortgage process looks like:
- Check your affordability
For an idea of how much you can borrow, it’s always a good idea to start any mortgage process with checking your affordability.
A mortgage advisor can help you to understand your financial position and explore whether you’re eligible for any government schemes (such as the First Homes scheme) or specific deals, such as a new build mortgage.
- Obtain Mortgage in Principle
To ensure you possess proof of funds, lenders may require you obtain a Mortgage in Principle (also known as an Agreement in Principle) before allowing you to view a property. A Mortgage in Principle simply outlines how much a lender could offer you, based on factors like your income, spending, and debts.
- Select plot
Start by selecting your ideal plot with the right number of bedrooms, layout, and positioning. Review the floor plans, brochures, and specification of each plot can help you to narrow down your choices.
- Reserve property
Secure the plot by signing a reservation agreement and paying the reservation fee (typically between £500-£5,000) to the developer.
- Contract and deadline issued
You’ll be provided with a contract and deadline to exchange contracts, which is typically within 28 days of reserving the new build.
- Mortgage application
Work with a mortgage advisor to obtain a favourable new build mortgage arrangement that will cover the cost of your new home. For off-plan new build properties, mortgage offers typically expire after six months.
- Appoint solicitor
A solicitor should then be appointed to handle the legal side of the property purchase, such as carrying out searches, reviewing planning permissions, and checking for restrictive covenants.
- Exchange contracts and pay deposit
This is a legally binding arrangement where contracts are exchanged (contracts are signed and swapped between the buyer and seller) and the deposit is paid – which is usually at least 10% of the property purchase price.
- Collect the keys and move in
Once the build is complete (if you’ve purchased off-plan), you can collect the keys, move in, and start enjoying your new home!
- Post-completion details
Your solicitor should register the property with Land Registry, while should also ensure any warranty and completion records are kept in a safe place for future reference.
What deposit do you need for a new build mortgage?
Most lenders will require a new build mortgage deposit of somewhere between 5% to 15% of the property purchase price. For a more accurate idea of how much deposit you’ll require for a new build mortgage, speak to a specialist mortgage advisor or lender.
How much can I borrow on a new build mortgage?
Lenders will typically lend you between 4-5 times your annual income, depending on your spending, credit history, and deposit. Discussing your specific personal and financial circumstances with new build mortgage lenders can help you to understand exactly how much you may be able to borrow.
When do you start paying the mortgage on a new build?
While the exact date of paying the mortgage varies depending on the lender and direct debit setup time, mortgage repayments will only start after you’ve legally completed.
What to watch out for when it comes to new build mortgages?
While new build mortgages can come with many benefits, there’s also things you need to be aware of when exploring your loan options. This includes:
Stricter deposit requirements
You may require a bigger deposit for new build mortgages than if you were buying an older property. Mortgage lenders can be stricter on the amount they’ll lend on new builds due to the risk of the property falling in value during the first few years.
New build flat consideration
Considering purchasing a new build flat rather than a house? It’s important to bear in mind that new build flats often require larger deposits as lenders can view these properties as harder to sell quickly and more prone to drops in value.
New build flats can be harder to sell due to things like short lease terms (under 100 years) and considerable service charges.
Tight 28-day deadline
Most new build developers operate a standard reservation period of 28 days. That means you only have 28 days from reserving the property to exchange contracts and legally complete the purchase.
While these periods can vary and may be open to negotiation – especially if the new build is an off-plan property – they generally require you (and your lender!) to move quickly.
Impact of developer incentives
While the typical new build developer incentive of a 5% reduction in property price is usually accepted by mortgage lenders with no issue, incentives that exceed this 5% threshold could cause challenges.
This is because these larger developer incentives can artificially inflate the new build’s true value, creating problems with the mortgage valuation and loan-to-value (LTV) ratio.
Although it’s rare for mortgage lenders to decline the application, it could significantly impact the mortgage rates they’re willing to offer you.
Secure your new home with a new build mortgage
At Eaton Homes, our area of expertise is property not mortgage premiums. We can help you to find the new build home you’ve been dreaming of – set in the beautiful area of Beeston.
Nestled in rural Cheshire, our latest development offers prospective buyers convenient access to nearby essentials, including local stores and cultural attractions, as well as transport links to Manchester, Liverpool, Warrington, Chester, and North Wales.
Whether you’d like to arrange a viewing of The Old Cattle Market, Beeston, or ask our team a related question about our new build homes in Cheshire, we welcome all enquiries! You can either:
Call our team on 01829 824044
Or, email us at info@eatonhomes.co.uk
Disclaimer
This content is for general informational purposes only and does not constitute regulated financial, legal, or tax advice.
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
Planning your budget? try our mortgage calculator or read our other home buyer guides.
