Mortgages for new-build homes

New-build mortgage comparisons are provided by Koodoo^[1]

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What is a new-build property?

A new-build property is a flat or house that’s completely new with no previous owners or occupants.

What are the benefits of buying a new build?

If you’re a first-time buyer, one of the biggest advantages of buying a new-build property is that you can join the Help to Buy: Equity Loan scheme or the First Homes scheme (available only in England). There are certain criteria that will need to be met in order to take part in these schemes.

As the property is newly built, you won’t have to worry about things like how old the boiler is, whether the electrics are up to modern standard or if it needs to be made energy efficient.

You may also find that some of the fixtures and fittings are included in the price of your home, which could save you money on kitting out a new house.

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Disadvantages of buying a new build

We’ve all heard of the infamous ‘snagging lists’ on new-build homes. They’re a list of issues that you can raise with the housebuilder on completion of your property, this can include everything from cosmetic problems to structural issues. It could prove difficult to get all your snags rectified.

As homebuilders are on a strict budget with tight timeframes, you may find that the quality of your new-build house isn’t quite up to par with older properties that have stood the test of time.

Developers are adept at staging properties to make them look larger than they are. There will almost always be less room than if you bought an older home. Smaller rooms and gardens in new builds can seem bigger by cleverly laying out furniture or using non-standard size furniture.

As new-build homes should be in an immaculate condition, you’re often charged a premium to purchase one. So, although its value will eventually rise, you’ll already be on the back foot as you have paid more than that size and type of home is typically worth compared to similar older properties on the market.

You also may want to consider whether the site will be finished when you move in. If not, there may be months of building work right outside your home.

Are mortgage lenders stricter on borrowing for new builds?

Yes, lenders are stricter on new builds because of the premium price you pay to purchase one.

In fact, your property may decrease in value for the first few years after it’s built to make up for the inflated price.

This is obviously risky to lenders, so they often require a larger deposit than you would need for older properties.

It’s worth remembering that a mortgage agreement in principle is usually only valid for six months, so if the build of your home is taking a long time, you may have to reapply and have your affordability reassessed again.

What kind of deposit do you need?

Generally, you’ll be required to have a 15% deposit for a new-build house and a 25% deposit for a new-build flat.

This is in contrast with the 10% deposit (or even 5%) usually required on other types of properties.

However, as mentioned previously, you can take advantage of government schemes specifically aimed at people who wish to own a new-build home.

Where can I get help to buy a new-build property?

If you’re struggling to get on the first rung of the property ladder, you may want to think about taking advantage of a government scheme. There are certain criteria that will need to be met in order to take part in these schemes - read more on MoneyHelper website.

Help to Buy: Equity Loan

If the property you wish to buy is sold by a Help-to-Buy registered homebuilder, you may be eligible for this scheme. Essentially the government will lend you between 5-20% (40% in London) of the value of a new-build property in the form of a loan that’s interest free for five years.

You’ll also need to watch out for the limit on property prices, this differs depending on which region you’re buying in.

New applications for this year must be submitted by 31 October 2022 and rules differ in Scotland and Wales.

Shared ownership scheme

You purchase a share of the new-build home and pay subsidised rent on the remaining part. You can purchase between 25% and 75% of the property.

Only houses that have purposefully been built for shared ownership can be bought using the scheme and you’ll be a leaseholder, not a freeholder. This means that after a set period of time, the lease will revert back to the freeholder, this is usually 99 years.

First Homes scheme

This affordable housing scheme is only available in certain areas of England and provides a discount of at least 30% on new-build homes. A mortgage must be used to fund at least 50% of the property purchase.

Eligibility criteria includes having a combined household annual income of less than £80,000 (£90,000 in London).

Mortgage guarantee scheme

Available for both new builds and older properties, the mortgage guarantee scheme enables buyers to purchase a home with a 5% deposit.

This is by the government guaranteeing the share of your mortgage over 80%, which means that if you fail to pay, it will provide compensation to the lender.

Many major banks offer 95% mortgages as part of this scheme, but interest rates tend to be high.

The scheme will finish in December 2022.

Frequently asked questions

Can you get a 5% mortgage on a new build?

Yes, you can through one of the government schemes:

Help-to-buy: Equity Loan
Shared Ownership
First Homes
Mortgage guarantee

Do you need a mortgage when buying a new-build home?

No, you can purchase a new-build home with cash. This can help shorten timescales as you’re not waiting on your mortgage provider for conveyancing.

However, it’s important that you still carry out a survey and have the property valued to make sure you’re not overpaying and are happy that it’s structurally sound.