New Builds and Mortgages: What You Need to Know

How are new build mortgages different?

In essence, mortgages for new builds aren’t hugely different from ones for older homes. But the process can be more tricky, especially if your home is still being built.

Timeframe

Most mortgage offers stay valid for six months, so if your home hasn’t been built yet then it could make things difficult if there’s delays with construction. Some lenders can extend this offer period, but you’ll usually need your application to be reassessed. It’s a common scenario, but something to be aware of. Some lenders offer specialist mortgages for new builds with an extended validity from offer to completion.

How much you can borrow

Because of previously artificially-inflated purchase prices, some lenders are cautious when it comes to how much they’re prepared to let you borrow on a new build. If you’re not going through a scheme such as Shared Ownership, then you might need a bigger deposit than you would with an older home. 

All mortgage lenders do things differently, so it’s best to get advice before applying. Our Mortgage Experts have plenty of experience getting mortgages for new builds. They’ll know which lenders to approach, and how to make your application as good as possible.

Things to watch out for when buying a new build

When it comes to deciding whether to buy a new build, there’s a few extra things to watch out for compared to buying a pre-existing home. 

The good stuff

Protection

New homes usually have warranties which protect you if something goes majorly wrong with the building. The National House Building Council offers 10-year certificates, giving you more peace of mind as a buyer. 

Have it your way

A lot of developers let you choose your own fixtures and fittings, meaning you can have things like the kitchen, bathroom and carpets exactly how you want them - all ready for when you move in. 

Chain-free

There’s no waiting for other people to buy and sell at the other end, so it can make the process quicker and easier. 

Save on energy

New homes tend to be more energy-efficient than their older counterparts. Meaning money saved on gas and electricity bills. 

The not-so-good stuff

The cost

The value of new build homes has historically been artificially inflated. This is known as the ‘new build premium’. You also might have to pay more up front, as developers usually ask you to pay a fee to reserve your home. 

Delays

As we touched on earlier, if you’re buying off-plan, there’s always a chance of delays in construction, meaning completion happens later. Most mortgage offers are valid for six months, so if the clock runs down you risk needing to apply for a mortgage all over again. 

Gatekeeping by developers

There’s increasing reports of developers not allowing people to reserve or even view properties unless they’ve been ‘assessed’ by their in-house mortgage brokers. As a buyer, you’re absolutely entitled to seek your own independent financial advice, and aren’t obliged to use the developer’s broker. 

If you’re set on a particular property, you may have to ‘play the game’ and see their broker to bag a property, but it’s totally your right to work with an advisor of your choosing. Not all brokers are equally competent, and if you have a more complex situation (self-employed or bad credit history) then you might be wrongly told that you’re not eligible for a mortgage, when actually you just need specialist help. We only do the tricky stuff, so get in touch to find out your options. 

Build quality

A lot of large developers value quantity over quality. Many buyers get drawn in by beautiful-looking homes that hide the reality of the build quality. When buying a new home, it's best to get an independent snagging company to have a good look around your home, either before or after your purchase (before is better). A 'snag' is something that's been done, but not correctly, and some snags might seem insignificant at first, but can cause further issues down the line.

Leasehold issues

Some leasehold properties have a hidden clause that allows your ground rent to double every decade 😱. Most mortgage lenders won’t lend on any homes that have this clause, leaving loads of new build owners stuck with properties they can’t sell. If you’re buying a leasehold property, make sure you check the paperwork thoroughly beforehand. 

The new build buying process

STEP 1: Find a good developer and a home that’s right for you

Not all developers are equal, and it’s best to do your research when deciding which developer to buy from. You’ll be bombarded with lots of shiny marketing brochures and  gorgeous show homes, so make sure you get a detailed specification of the property you’ll be buying and a breakdown of all the costs involved. 

STEP 2: Get a mortgage broker and a decision in principle

You don’t have to use the developer’s in-house broker to get a mortgage - you’re free to source independent financial advice. A Decision in Principle is a confirmation from a lender that they’re willing to lend you a certain amount of money to purchase a property. A mortgage broker (like us) can sort this for you fairly quickly, and it can help you get an indication about the size of mortgage you’re eligible for, which helps you to determine how much deposit you’re going to need and the options available. Make an enquiry to get a Decision in Principle. 

STEP 3: Reserve your home

Once you’ve found the ideal home and sorted your finances, you’ll be asked to pay a fee to reserve the property. What you’ll be asked to pay depends on the developer, but it can be up to £2,000. Once you complete, this’ll be deducted from the overall price. 

STEP 4: Appoint a solicitor

When large amounts of money are exchanged, you need a professional to handle the transaction. Your solicitor does this on your behalf, and protects you legally during the house-buying process. They also carry out searches on the property and update the Land Registry. Your Haysto Mortgage Expert can gather quotes for you and provide real-time updates through your online portal. 

STEP 5: Secure your mortgage

Your Mortgage Expert will have been beavering away in the background to find the right mortgage deal for your needs. Once they’ve found you a mortgage, they’ll help you submit your application and deal with the lender. The mortgage lender will then work out how much you can afford to borrow, and carry out a valuation of the house you want to buy. If it hasn’t been built yet, they’ll work to the developer’s plans and specifications.

STEP 6: Pay the deposit and exchange

Time to part with the cash! If all the solicitor’s searches come back ok, then both your solicitor and the developer’s solicitor will draw up some contracts ready for you to sign, known as ‘exchanging contracts’. You can then set a completion date (the date you officially become the property owner) once you’ve exchanged. Remember, once you’ve exchanged contracts, you won’t be able to back out from the purchase without losing your deposit, so it’s important to make sure you’re 100% happy.

STEP 7: Get a snagging survey

Between exchange and completion is the perfect time to get a professional snagger to carry out a survey on your new home. The New Home Quality Control team typically spends around four hours examining every part of the property and identifying issues that haven’t been completed to a satisfactory standard, such as defects with decoration, fixtures and fittings. The complete snagging report will then go to the developer who should fix any problems before you move in. 

STEP 8: Complete!

It’s time to book the moving van and box up your things. Your completion date is the day you officially own the property and become a homeowner 🎉 The whole mortgage process from start to finish can be anywhere from around 6-8 weeks, but can sometimes take a lot longer. It all depends on how complex your situation is, and if there’s any hold-ups on the developer’s end.

Help with new build mortgages

If you’re looking for a mortgage on a new build, it’s a good idea to work with an independent mortgage advisor. While you might feel pressured to use an estate agent's in-house broker, they usually have the developer’s best interests in mind, rather than yours. So a quick sale can take priority over finding the right mortgage for you.

Buying a home is probably the biggest purchase that you’ll ever make, so it’s important to fully understand your options, get clear advice, and feel confident you’re getting the right mortgage for you. If you have any added complexity on top (bad credit or self-employed) then getting expert help is a no-brainer.

Our Mortgage Experts only do the tricky stuff. They’re experts in mortgages for new builds, buying schemes, and other things like bad credit and self-employed applicants. Make an enquiry to find out your options.