New build mortgages

Different lenders have slightly different definitions of ‘new build’ for mortgage purposes but generally speaking it’s a property that is newly built and has never been bought or lived in by anyone. 

It can also include properties that have recently been converted or substantially renovated specifically for the purpose of sale, or those that are not yet fully built, which you can buy ‘off plan’. 

The mortgage application process is the same regardless of whether your home is a new build or not, but if it’s off-plan you may need to send the lender some blueprints and images showing what the property will eventually look like.

Lenders may require a higher deposit and or charge higher interest rates when you’re buying a new build home, as there’s a risk that its value could fall in the first few years. This is because it will lose its ‘brand new’ appeal once someone has owned it. 

If you're buying a new build home 'off-plan' you may find it harder to get a mortgage than you would buying a property that has already been built, as the property price can change during the build period, making it a greater risk to lenders, particularly if it falls in value.  

The timing of your mortgage application is very important when buying a new build home, particularly if it is incomplete. Your mortgage offer will have a validity period (typically around six months), meaning it could expire before the home is built. You may be able to get an extension of the mortgage offer if the property is not completed in time,but this is at the lender’s discretion. 

If the lender refuses to extend the offer, you will have to submit a new mortgage application. However, there are some more specialist lenders who have mortgages designed to cater to new-build buyers’ needs. 

Sometimes referred to as new build mortgages, the offers remain valid for longer on these products, typically between nine and 12 months. A mortgage broker will be able to help you find a lender offering a mortgage with a longer validity period, should you wish to buy ‘off-plan’. 

The majority of lending criteria is the same whether you buy a new build property or not, although there are typically stricter loan to value (LTV) limits on new build properties. The LTV is the maximum percentage of the sale price that they are willing to lend. 

For an older property, it’s common to borrow as much as 95% of the cost of your home, meaning you can secure one with as little as 5% deposit. With new-build properties, 15% is more likely to be the minimum deposit requirement, with some lenders requiring as much as 25%.

Another thing to be aware of is how developer incentives are viewed by your mortgage lender. Although incentives, such as free stamp duty, that may be offered to persuade you to buy a new-build home seems like a great benefit, lenders will be cautious around the total monetary value of any benefits you receive.

Typically lenders are comfortable with incentives that are worth as much as 5% of the property value, but any more than this, they may reduce the amount you’re able to borrow, as they will deduct this value from their valuation of the property. 

For example:

If your home costs £150,000 and the total cost of incentives is £15,000 (or 10%), the lender could reduce the LTV and/or increase the interest rate on your borrowing.

The government launched the First Homes scheme in June 2021, which provides a discount of between 30%-50% on the price of new build homes in England. This is intended to help first time buyers on a lower income to get a foot on the property ladder. 

Key workers will likely be prioritised for access to the scheme, but it’s open to anyone that qualifies for the below criteria:

The local council may also insist that users of the scheme are:

Unless they are:

The properties in the scheme have been built specifically for this purpose and with the intention that they will remain as affordable housing. This means that you can only buy one if you are happy for it to remain a first home when you move on, so you can only sell it to another eligible buyer and you must give them the same percentage discount that you got.

There are a number of new-build housing developers that offer shared ownership purchase through a housing association. Shared ownership allows you to buy a percentage of the property and rent the remaining share from the housing association, who own the rest of your home.  

With many shared ownership properties, you have the opportunity to gradually increase your ownership over time, so that you can eventually own it outright. 

This scheme is the first non-government home ownership scheme that is widely available in the UK and was developed by the Home Builders Federation to help people buy a new build home with a deposit of just 5%. This may go some way to replacing the government’s help to buy scheme, which is no longer open to new applicants in England and will close to Welsh applicants in 2023.

This scheme differs slightly in that it’s not just available to first time buyers, and those moving up the chain are also welcome to apply. More details can be found on the Deposit Unlock website. 

Most property search engines have a new build home filter, but many developers also have their new build homes listed separately, including information on whether or not they are eligible to be bought through a government financing scheme like the first home scheme.

The NHBS (National House Building Council) Buildmark is a 10-year warranty covering quality of construction. This will give you peace of mind about the build quality of your new home, but will also be an important factor for mortgage lenders, who are unlikely to approve a mortgage on a property without this guarantee.