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Mortgages for new build homes

Mortgages for new build homes

New build homes can sometimes be in better shape and have better energy efficiency than older homes, but getting a mortgage for one might throw up a few extra hurdles.

If the new build home you wish to buy hasn't been fully built yet, then lenders might be more reluctant to lend to you. New build homes tend to also be part of bigger blocks of flats, which some mortgage providers have lending restrictions on.

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How to get a mortgage for a new build home

If you're buying a new build home 'off-plan' you may find it a lot harder to get a mortgage than for a new build home that has already been built.

Off-plan means the new build home is still in development, or has not even started yet. You can buy a new build home off-plan, but there are extra risks for you, and for the mortgage lender who might not be as willing to give you as favourable deal as they would otherwise.

The process for getting a mortgage is the same regardless of whether your home is a new build or not, but if it is off-plan then you would need to send the lender some blueprints and images projecting what the property will eventually look like.

With some new builds, some mortgage lenders might restrict their loan to value offer because they take extra precautions surrounding new builds, so it's important that you are as prepared as possible with your mortgage application.

More important, however, is the timing of when you make your mortgage application, particularly if the new build is still incomplete. Your mortgage offer will have a validity period, meaning it could expire before the home is built, so you will need to check what the provider's standard mortgage offer validity period is like.

Many mortgage providers usually put a six-month deadline on their offers, but this could vary between each provider, so it's best to check before you make your application.

If the property is delayed or not completed in time, then you could speak to your mortgage provider to extend the offer. If they refuse, then you will have to make mortgage your application all over again.

There are other factors that could complicate completing the purchase, including a change in the value of the new build you're buying. In the time between placing an offer and actually buying the property, many things including the value can change, and that would give the lender the right to withdraw their offer.

Some new build developers will impose a deadline to complete the purchase (sometimes as short as 28 days), which might reduce the risk of anything changing and affecting the mortgage, but the lender might be reluctant to give you the money that quickly, so double check if they can accommodate stricter timelines.

Help to Buy mortgages and new builds

Many components of the original Help to Buy scheme have now been scrapped, but there are still some elements of it left to help with getting a new build mortgage.

The Help to Buy scheme was originally aimed at helping first time buyers get on the property ladder through an equity loan or a mortgage guarantee. For example, many first time buyers might only be able to save enough deposit for a 95% mortgage, but wouldn't be able to afford the higher interest rates.

With a Help to Buy shared ownership scheme, you can buy between 25% and 75% of a property. This scheme mostly applies to ex-council and new build houses. You take out a mortgage for the percentage of the property that you own, and pay rent on the remaining share.

The equity Help to Buy loan would be a loan of around 20% from the government that you would not need to pay back for the first five years. Some lenders are still offering the Help to Buy equity loan.

The Help to Buy scheme also includes an ISA designed to help first-time home buyers save up money for a deposit, and a London home buying scheme. The ISA is no longer open to new customers, but is available for existing customers to use until 2029.

For first time buyers who have missed out on the Help to Buy ISA, they could opt to open the similar Lifetime ISA (LISA). With a LISA, you can save up to £4000 per year towards owning a first home or retirement. The government tops up your tax-free savings by 25%.

With the London Help to Buy scheme you can buy a home within one of the London boroughs using an equity loan from the government worth up to 40% of the value. You won't be charged any fees on that equity loan for the first five years, and you would only need to put up a minimum of a 5% deposit. You don't need to be a first time home buyer, but you can't own any other property at the time. The scheme applies to new builds.

There are also Starter Home schemes across the country, [currently in planning phase] which give a 20% discount on the price of a new build home.

Where to buy a new build home

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

Normally with some new build homes and schemes, the sales are prioritised for people who live or work in the area. Although you can buy new build homes as an investment, some councils have rules with the developers to ensure that a portion of the homes are aimed at people who will live in the home.

If you are buying a new build home as your first home, then you should check your local area's listings to see if there are any initiatives to help local people get on the ladder first.

Should I buy a new build home?

New build homes are generally more reliable and energy efficient than older homes, but some developments are built hastily and with poorer materials. It's worth doing your research to make sure quality materials have been used.

The 'new' factor is also likely to bump up the price, meaning you may not always get the value you should. There are also schemes to help first time buyers get on the property ladder, specifically tied to new build homes.

New builds — things to watch out for

The main thing to watch out for with a new build property if it is off-plan is that the price could go up between agreeing the offer and completing the purchase. Your mortgage lender may pull out of the deal as a result and leave you needing to apply for another mortgage.

New build homes, when they are in apartment buildings, may also come with high service charges for amenities you do not need. You would have to pay these fees, so you should weigh up how important they are before agreeing to purchase the new build home.

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Compare mortgages if you're remortgaging, a first-time buyer, looking for a buy-to-let or moving home

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