New Build Mortgages
New Build Mortgages
Craig Leigh breaks down the new build mortgage process.
Is it hard to get a mortgage for a new build home?
It’s not particularly hard to get a mortgage for a new build. There are slightly fewer options available, but still plenty of choice. In terms of the process, it’s very similar to any other type of mortgage.
Sometimes the timescales can differ due to the property not being built yet. Some lenders will have an extended offer period for new build property – so instead of your offer lasting the standard six months, some lenders extend it to 12 months to allow for that.
As with a lot of mortgages, it comes down to criteria. There are many factors that can dictate the products available to any client. But for a standard client there will be very competitive deals out there for a new build mortgage.
How long does the new build application process take?
It depends if the property is built. If it’s not completed yet, it can be longer. In terms of the actual mortgage process, it’s a normal application. The property will be valued, whether it is built or off plan. That side of the process is exactly the same and won’t take any longer.
What deposit do I need and how much can I borrow?
There’s a misconception with new builds that you need a large deposit, but there are lenders out there that will do new builds with a 5% deposit – that’s the lowest you can get on any property.
There are plenty of products for a 5% deposit, not necessarily using Help to Buy or another buying scheme. They are just standard mortgage products.
In terms of borrowing, that’s dictated by your incomings, outgoings and credit history. There’s no real difference in affordability when it comes to new builds vs non-new builds. The only difference is when it’s on a scheme. As an example, with the Help to Buy scheme, the income multiple is capped at 4.5 times income.
Are there other incentives available on new build homes?
Sometimes developers will put incentives in place. That could be cash back from the developer; they might pay the stamp duty for the property; they could pay the legal fees or they could give you upgrades on the property.
Sometimes these incentives can be used towards the deposit. If there was cash back from the developer for the property, that be used towards the deposit which could mean a better mortgage product is available for you.
Our job as a mortgage broker is to source the market for the best options for you. Our experience and depth of knowledge can help you to secure that all-important mortage at the best rate we can.
What schemes are available on new build properties? Does Help to Buy end in 2023?
Help to Buy is unfortunately ending in 2023 and the end date for new applications is approaching fast. You have to apply for the Help to Buy scheme through the government and new applications end on October 31 2022.
Also, the property has to be ready to be lived in by 31 December 2022. So while the final deadline is March next year, if people are looking into it now it’s almost too late.
What is the Deposit Unlock Scheme?
This is a new scheme with home builders and lenders. There aren’t too many lenders on it at the moment but more will be coming on board. It’s for First Time Buyers and home movers. There are few restrictions in terms of the maximum loan available, but basically it allows you to buy with a 5% deposit on a new build property.
While you can get a 5% deposit with a standard mortgage, there’s less availability, so this is designed to increase the number of mortgages out there. It works directly with the home builders. This one is going to be big, particularly with Help to Buy ending.
What is shared ownership and how does it work?
Shared ownership is another great scheme. You can buy a percentage of a property and the rest is owned by the housing association. These are not always available on new builds, but a lot of new developments offer these as a route to affordable housing. It helps people get on the property ladder.
I know plenty of people that have used the scheme to very good effect. With shared ownership you can ‘staircase’ up. If for example you buy a 50% share initially, after a few years you can buy more of the property using the equity, and repeat that all the way up to 100% where you’ll own the property outright.
The key is that you will pay rent to the housing association for the percentage you don’t own, alongside your mortgage payment.
What is a Joint Borrower Sole Proprietor mortgage?
This is commonly known as JBSP and sometimes Joint Borrower Sole Applicant. Again, it’s another great option and more lenders are doing this now.
It’s popular where a younger borrower or borrowers want to buy a property and their income’s just not enough to qualify for a mortgage. Maybe their parents own a property or have surplus income, in which case they can be added onto the mortgage to boost affordability. The parents won’t be on the deeds of the property, so it doesn’t cause any issues with stamp duty.
That’s one of the big selling points of this. It’s almost like a guarantor mortgage – it enables you to borrow more than you could through a standard mortgage.
It can also work the other way, where an older borrower uses their son or daughter’s income to help them buy a retirement home. A lot of the time within five to ten years the buyer can remove the guarantor from the mortgage and carry on independently. It’s a good way to help buyers get on the ladder.
What are the pros of new build mortgages?
One of the key pros with a new build is that there’s no chain – you don’t need to worry about other people pulling out – it’s almost all in your control. With a standard property there could be a chain of properties all waiting to buy and sell. Just one falling out can completely disrupt things and add time and stress.
Another pro to new builds is that they come with a warranty. A lot is covered so if things go wrong you can have repairs done without any cost to you.
Alongside that, new builds are low maintenance. You will have a brand new boiler. The electrics should be absolutely fine. Nothing should go wrong and you won’t have any maintenance costs for a long period of time.
Another good thing is you can potentially choose the finish on the property. If you’re buying off plan you can choose your kitchen, bathroom fittings, colours, carpets and things like that.
Are there any disadvantages?
In terms of the cons, if the property is not built you can’t physically see what you’re buying. You basically buy a show home. But you might view a five bedroom detached house with a lovely garden, but if you’re buying a two-bed terraced property that’s not really going to give you a fair reflection.
It’s also widely known that you potentially get less for your money in terms of size of rooms. Because of the way the housing market is these days, developers try to get as many houses on a site as possible. Sometimes gardens and rooms are not as big as with properties built in the 1960s and 1970s.
It’s not always the case, but potentially as the first people to move into the property, there could still be lots of building work going on around you. The roads might not be finished and there may be construction noise for a while.
How can the Mortgage Broker help me with a mortgage on a new build?
A broker helps by offering more options and making things simple. You could personally search a few lenders, but where should you start? As expert brokers, we know the lenders that are good for new builds, who offer the best affordability calculations, whose criteria will fit, and the best available products for each individual client.
It will save a lot of time and money. We will look holistically at your circumstances and the best product available for you. We also guide you through the process from start to finish. We can recommend solicitors, answer any questions about buying the property, complete your application or get you on the Help to Buy scheme.
We’re here to advise and hold your hand all the way through. If there are any issues we can assist you through it all. We essentially take the stress away – it’s what we do day in, day out so we know how to deal with any situation.
If you have any questions, we’re always here to help – just give us a call.
Your home may be repossessed if you do not keep up repayments on your mortgage.