New build mortgages has many advantages over purchasing an older home. There will be less upkeep required, if any at all, and your house will be more energy-efficient. You won’t have to be concerned about getting caught in a property chain as you are the first owner. You might even find that some of the fixtures and fittings are included in the buying price. However, obtaining a new construction mortgage can be more challenging than doing so for a conventional residential mortgage.
A new built property is what?
New constructions are defined differently by different lenders, but typically they are houses that have just been built and have never been occupied. You can purchase a new build that is “off-plan,” which denotes that it is still under construction or that work hasn’t yet begun. For new build mortgages, some lenders approve buildings that have undergone significant renovations.
Buying a new construction: Things to consider
A newly constructed home could cost more to purchase than an equivalent older one. You should be aware that your home’s value could decrease in the first few years due to something called the “new-build premium.” This is due to the fact that once you’ve lived there, it loses its appeal as being spanking new. Therefore, wait until you’ve lived in your new Bexley house for a time before making the decision to sell.
The developer typically requires a reservation fee, and if you choose to purchase off-plan, be aware that there may be delays. Unexpected problems and delays in completion dates are a given in construction projects. Your anticipated moving-in date will now be later as a result.
New build mortgages, how to obtain?
It may be more difficult to secure a mortgage for a newly constructed home for the reasons outlined above. Compared to a typical residential mortgage, you will have to pay a larger down payment and higher interest rates. The timeframe for receiving your new build mortgage will be a crucial consideration, and the loan conditions may be more stringent.
New build mortgages deposit requirement
The risk to the lender is increased because the value of a newly constructed home may decrease as soon as a person moves in. In order to offset this, lenders require larger deposits, which are often scaled based on whether you’re buying a new-build home or flat. For newly constructed homes, lenders often agree to an 85% loan-to-value (LTV) ratio, which means a 15% deposit is required. Lenders may require a lower LTV for newly constructed apartments, such as 75%, in order to require a 25% down payment.
If you’re having trouble saving a sufficient down payment, there are programmes available to assist. You might, for instance, use Deposit Unlock to get a 95% mortgage from one of the program’s partner lenders. This means that the deposit for your new construction home is simply 5%. The First Homes Scheme in England offers a reduction of at least 30% on the cost of newly constructed homes to assist first-time purchasers in getting on the housing ladder. With shared ownership, you can purchase a portion of a new construction while renting out the remaining portion.
Developer rewards for new construction
The developer may present you with a reward. For instance, having stamp duty paid for or the legal fees included in the purchase price. Just be aware that the lender may remove the excess money from the purchase price if your incentive exceeds 5% of the value of the new-build property. This thus lowers the amount you are able to borrow.
For instance, suppose you pay £200,000 for a brand-new house in Bexleyheath and receive a £10,000 incentive. This represents 5% of the purchase price, hence it has no bearing on the maximum loanable amount. But if you’re given a £15,000 incentive, that’s 7.5% of the purchasing price. As a result, when determining how much they are willing to loan you, the lender may deduct £5,000 off the purchase price.
New build mortgages duration
When it comes to timing, you could run into two problems. Your mortgage offer will be good for a predetermined amount of time, like six months. If you decide to purchase an off-plan new construction in Pimlico, your mortgage offer will expire if the house isn’t constructed on schedule. The lender may extend your mortgage offer if it appears that this will be a possibility. Some lenders, however, will demand that the mortgage application process be restarted. Other lenders respond to these delays by extending the expiration dates of their mortgage offers for newly constructed homes.
Another problem is that some developers have a rigorous deadline of 28 days between the time you pay the reservation fee and the time the contracts are exchanged. It might be challenging for lenders to set up a mortgage in such a short amount of time. To save time, it is advantageous to have a mortgage in place before you begin looking at new construction. In order to ensure that this deadline is met, our mortgage brokers also know which lenders can handle new build mortgage applications promptly.
Value of the property
You will still be responsible for paying the original agreed purchase price even if the value of your new build increases between the time you pay the reservation fee and the conclusion of the construction period. Your mortgage could be impacted by this regardless of whether the value has increased or reduced. You won’t have enough money to purchase the house, for instance, if your mortgage offer is withdrawn and the lender will only accept a lower sum. You will be obligated by law to either purchase the new construction or pay the developer compensation. Your deposit will be forfeited, and the developer may file a lawsuit to recoup the difference between the initial purchase price and the lower selling price.