New Build Mortgages

What is a new build mortgage?

As the name suggests, new build mortgages are home loans used to buy properties either recently built (in the last two years) or about to be built (known as ‘off-plan’). Mortgage lenders will typically also consider properties which have been extensively renovated as new builds.  

Is getting a mortgage for a new build property harder?

No, not necessarily. In some respects, getting a mortgage for a newly built home can be more straightforward as there’s no upward chain involved, which can often slow down the process. 

Both buyers and mortgage lenders also have the peace of mind of knowing a brand-new property usually comes with a 10-year warranty from the National House Building Council (NHBC)*. 

But new-build properties can also come with their own unique challenges, mainly around overinflated pricing and unexpected delays, particularly if you’re buying off-plan. As most mortgage offers lapse after six months, a long delay to completion might mean you have to re-apply. 

This is why it’s recommended that you seek the help of a mortgage broker with experience arranging mortgages for new properties. They’ll be able to guide you through the process and offer advice should there be any bumps in the road along the way. 

How much deposit will you need for a new build mortgage?

Mortgage deposits for newly built properties can be higher than for older properties, ranging from a minimum of 10% to 15% for a house and up to 25% for a new flat or apartment. 

This is mainly due to the premium paid for new-build properties and the potential for their value to drop in the first few years. Negative equity could make it difficult for an owner to sell the property or a lender to recoup their losses in the event of a repossession. 

All of this means mortgage lenders tend to view new build mortgages as more risky and, therefore, require a higher deposit. However, there are several incentive schemes designed to encourage buying new properties with lower deposit requirements, such as the Mortgage Guarantee Scheme and Deposit Unlock (see below for further details).  

How much can you borrow for a new build mortgage?

Mortgage lenders base the amount you can borrow on a multiple of your annual income, typically between 4 and 4.5 times this amount. So, for example, if you earn £50,000 per year and a lender uses 4 times this figure, you could borrow up to £200,000 for a new build mortgage. 

You can see how this could work out for you, based on your own income, by using our Mortgage Repayment Calculator. 

Lenders will also conduct a thorough affordability assessment to determine how much disposable income you have available after paying all your regular debt commitments before deciding how much you can borrow. 

The income you can use for this calculation will differ depending on whether you’re employed or self-employed. If you’re self-employed, you can also declare different amounts based on your trading status. 

To learn more, read our guide: Getting a Mortgage When Self-Employed. 

What schemes are available to help you buy a new property?

Several incentive schemes are available to help you get a mortgage to buy a new property. These include: 

• Deposit Unlock. Allows someone the opportunity to buy a brand new home with just a 5% deposit and use a 95% loan-to-value (LTV) mortgage for the remainder. This scheme is backed by a mortgage indemnity, paid for by developers, to encourage more lenders to offer higher LTV lending on new properties. 

• Shared Ownership. Also known as ‘part rent, part buy’, shared ownership allows you to buy part of a new property - usually between 25% to 75% - and then pay rent to a housing association on the remainder. The deposit you pay is based on the amount you buy, not the total property value. 

• Mortgage Guarantee Scheme. Similar to Deposit Unlock, but backed by the government, it also offers someone with a low deposit (minimum 5%) the chance to get onto the property ladder. Unlike Deposit Unlock, you can consider buying either new or pre-existing properties. 

• First Homes Scheme. Available in England only and designed to help first-time buyers and key workers buy properties in their local area at a discount of 30% to 50% of the original value. 

Pros and cons of buying a new property

Benefits

• A newly built property should be in better overall condition than a pre-existing one, reducing the prospect of any expensive repair costs for several years

• New build properties are generally more energy efficient, reducing utility costs

• The NHBC’s 10-year warranty provides peace of mind should any construction issues occur

• Plenty of incentive schemes are available to help people with a lower deposit and modest income buy a new property

• No upward chain exists, which could cause delays in the moving process

Drawbacks

• Brand new homes tend to come with a premium price tag compared to nearly new homes that are 5 to 10 years old. Be sure to plan for the long term and don’t overpay

• If you don’t qualify for any incentive schemes, you may have to pay a higher deposit to secure your mortgage.

• Developers can sometimes interfere with the process by requesting a reservation fee to secure off-plan properties. They may also insist you use an in-house broker to arrange the mortgage (which you do not have to accept)

• Unexpected delays could cause your mortgage offer to expire, meaning you would have to re-apply (most mortgage offers last six months, but some lenders can extend this)

• New build homes can often be bunched together to maximise the land space, leaving smaller plot sizes and gardens

Read our blog article on the new-build buying process to learn more about what to expect when buying a new property. 

How to apply for a new build mortgage

Once you’ve found a good local developer and selected a new home right for you, the next step is to start the mortgage application process. 

To give yourself a better chance of getting the mortgage you need, it’s strongly advised to seek the help of a mortgage broker rather than applying directly to a lender. 

You DO NOT have to use the ‘in-house’ broker recommended by the developer or estate agent. It is far wiser to use a mortgage broker who is separated from the building process and will focus solely on your behalf to secure the best mortgage deal possible. 

Your mortgage broker will be able to help with: 

• Getting a mortgage decision-in-principle (DIP) so you have an indication of how much you’ll be able to borrow and what property values you can consider

• Downloading and reviewing your credit reports to make sure there are no issues registered, which could hamper your chances of getting a mortgage. If there are any issues, they’ll be able to identify specialist lenders who can still help you

• Scouring the market to find the most competitive mortgage deals for new properties, including interest rate packages only available through brokers

• Preparing your mortgage application to be submitted and advising you on all the necessary documentation required so you get the acceptance you need - first time!

• Arranging all the conveyancing requirements and insurance to cover your mortgage repayments

What credit score do you need for a new build mortgage?

There isn’t one universal credit score that automatically guarantees you’ll be approved for a new build mortgage. 

There are two reasons for that: one is that the three main Credit Reference Agencies (CRAs)—Experian, Equifax, and TransUnion—all use different scoring systems, and secondly, every mortgage lender uses a range of criteria, including your credit rating, before reaching their decision. 

For example, you could have the perfect credit score but fail a lender’s affordability assessment because your income was lower than needed to prove you can afford the monthly mortgage repayments. 

To learn more, read our guide: What Credit Score Do You Need For a Mortgage?

Can you get a new build mortgage with bad credit?

Yes, it’s possible. It all depends on the type of bad credit issue you’ve had, the amounts involved, how much it has affected your credit score, and when it happened. Choosing the right mortgage lender will also be very important. 

So, for example, one late payment registered three years ago would be much less of a concern than being declared bankrupt twelve months ago. 

Several mortgage lenders (all of which have strong working relationships with us) specialise in helping people with bad credit and assess applications on a case-by-case basis. You may have to pay a slightly higher interest rate and be limited on how much you can borrow, but it’s worth speaking to a broker to find out all your options.