First Time Buyer New Build Mortgage
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Home » First Time Buyer Mortgage Advice » First Time Buyer New Build Mortgage
First Time Buyer New Build Mortgage
Rohit Kohli explains how the new build mortgage process works for First Time Buyers.
What are the requirements for getting a mortgage on a new build as a First Time Buyer?
As with any other mortgage, it’s the standard things to start off with. You’ll need to show proof of income and proof of your employment history or self-employment history. There will be checks on your credit history and other checks to make sure that you can afford the mortgage.
Particularly for new builds, there can be some stricter criteria, especially around how much lenders allow you to borrow. The maximum Loan to Value – how much you can borrow against the value of the house – is usually between 85% and 90% for a new build. If you’re buying a new build flat, it’s lower, at 80% or 85%.
Lenders are a little more restrictive in lending on new builds. Some will lend you a little bit more, up to 95%, particularly if you’re using one of the government schemes. But again, the criteria is a little bit more strict and you have to go through a few more checks to qualify.
How much deposit do I need for a mortgage on a new build property? Any differences for First Time Buyers here?
Lenders tend to be a little bit stricter on borrowing compared to the value of the house or flat for new builds. We would suggest saving a deposit of around 10% to 15% if you’re buying a new build house.
Some lenders will consider you with a 5% deposit, but generally speaking, you need around 10% to 15%. For a new build flat, it’s going to be closer to 15% or 20%.
As a First Time Buyer, you may find some lenders are willing to offer you a 95% Loan to Value, so you only need a 5% deposit, but that’s more likely on a house. There isn’t really anyone that gives you 95% on a flat at the moment.
There will also be some additional lender checks to ensure that you qualify. The thing to remember, though, is that larger deposits tend to unlock better rates, especially on new builds where property value depreciation is a concern to lenders. This is why they restrict how much they will lend you.
Can I use government schemes to get a mortgage on a new build?
There are schemes that will allow you to buy a new build property – both government schemes and some industry-led initiatives.
Shared Ownership is usually available for new builds and lets you buy a share rather than the whole property, and then you rent the rest. Typically, the share you buy will be between 25% and 75% of the property. Your rent will be adjusted based on how much you own.
The Deposit Unlock scheme is targeted at First Time Buyers and helps boost your deposit, with 95% mortgages on new builds. But only certain developers are participating in that – you’ve got to look out for builders near you that offer it.
The First Home scheme offers some First Time Buyers a discount on new build properties if they meet qualifying criteria. Usually it’s around being a key worker or having a local connection. Those schemes are very targeted and only available in certain parts of the country at the moment.
Finally, there’s something called the Own New scheme. It’s a partnership between lenders and developers to reduce mortgage rates for new build purchases. It makes the monthly payments a little bit more affordable during the initial fixed term.
That scheme is worth looking at because it can be slightly easier to get into a home. You just need to be aware that your mortgage payments will likely increase in the longer term once you’re no longer on the discounted rate [information correct at time of recording in January 2025].
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What types of new build properties can I get a mortgage for as a First Time Buyer?
Most lenders are happy to lend on all types of new build houses and flats. As I say, there is a difference between how much the lender is willing to lend on those, and it’s easier to secure a mortgage on a standard house.
Lenders can be a little bit more particular about new build flats. They’ll want to understand the size of the block and how many flats are in it? If it’s a large block, is there a lift? What’s the floor space?
There can be certain types of new build that lenders don’t really like. For example, we tried to help a client buy a ‘coach house’ style new build property. There are lenders that were willing to do it, but they offered a slightly smaller mortgage – so you’ll need a bigger deposit if you want to buy that type of property.
There are also specialist new builds – like eco homes um or properties using modern construction methods – and some lenders aren’t quite used to these yet. It might require a specific lender or a higher deposit.
What should I consider when choosing a new build mortgage advisor?
Look for a mortgage advisor who has whole-of-market access. That will allow you to find the right deal for your circumstances. Crucially, make sure they have access to schemes like the Own New scheme – like we do here. Not all advisors can work with those schemes.
Check with the advisor if they have experience with First Time Buyers and familiarity with the government schemes. Ask about their experience in handling new build properties – as there are often stricter lender conditions. See whether they have helped in those circumstances previously.
Crucially, look at speed. Once you put your reservation fee down on your new build, most developers run to very tight deadlines and will expect you to exchange contracts within 28 days. It may be a little bit longer, but it means getting your mortgage offer within that time to allow you to comfortably exchange within that window. Ask the broker about their ability to work to that requirement.
Are there any special considerations or terms and conditions to be aware of as a First Time Buyer for a mortgage on a new build?
One thing to consider when you’re buying a new build is that you’re probably paying a new build premium. Prices for new builds often tend to be a little bit higher than similar, but older properties.
That’s one of the reasons why the Loan to Value that lenders offer is a little bit lower than on an older property – they’re taking into account that potential premium.
When you go to developers, they might offer you some incentives. Be cautious about these. It’s not that you shouldn’t accept them, but look at how much they’re giving you. For example, they might offer you cash back or part exchange, or to pay your stamp duty.
Lenders will look at those incentives. If they feel they’re excessive, they may reduce the mortgage they’re offering you – they might deduct it off the value of the property itself.
They might feel that the value of the property is being excessively inflated because of the level of incentives that you’re receiving.
Most lenders are OK with up to about 5% of the property value as an incentive, in our experience. That can change over time, along with lenders’ criteria, so that’s something to consider.
Obviously, when you’re buying a new build, it’s not up yet – so it’s going to be a bit of time before you get your hands on the keys and move in. Something to think about is how long your mortgage offer is valid for. Most are valid for six months, but with the right lender it can be a little bit longer – up to nine months.
Some lenders will allow you to extend your mortgage offer for a month or two to help you get into the property. If it does come to that, the lenders may rerun an affordability check or a credit check to make sure that you are still able to afford the mortgage.
What are the benefits and drawbacks of new build homes?
I’d love to say that every new build you get is always going to be perfect, but often there is a little issue you need to get resolved with the builder afterwards. It’s complex putting houses and flats together, and some things do go wrong.
Walk around with the builder, pick up the defects and get them documented so they’re fully aware of what needs to be resolved. It may not be addressed straight away but they will get to it as soon as they can.
Energy efficiency is a big benefit. Most new builds are built to much higher standards these days with way better energy efficiency, which can save you a lot of money on utility bills.
If you’re in early enough, you can really make it your home – you may have the different options around fittings, layout or materials. You can customise things, but note there are certain deadlines after which you can’t make those choices.
A good benefit with new builds is that you normally get a warranty that lasts for 10 years. The first two years is normally a fully comprehensive warranty and the remaining eight years is around structural defects.
You also don’t have a property chain, so it’s usually an easier buying process. But that does mean there’s limited scope for negotiation with developers.
One disadvantage to think about is that any delays in construction can affect your mortgage offer and the timeline that you’re operating to. Weather is unpredictable and can cause delays.
How long does the mortgage application process for a new build property typically take?
The timescale can be anywhere between two and six weeks, depending on the developer and the lender. It can be quite tight to the 28 day deadline. It’s really important that you start getting everything in order well before you put down your reservation fee with a builder.
Speak to a mortgage broker, get yourself ready as early as possible and you should have a smoother journey in securing that mortgage itself. It’s just about making sure that you’re ready to go, with all your documentation together – that can speed things up.
How do I get a mortgage on a new build property as a First Time Buyer?
It’s just a few simple steps, really. The first thing is to understand what you can afford. So, speak to a broker who can calculate that based on your circumstances and deposit. It will set your budget for what you’re working towards.
Once you’ve done that, you can then get your Agreement in Principle, which you can show to developers to show that you’re serious. It may give you some additional bargaining power to move forward with your purchase. Then it’s about finding a property.
The developer will ask you to pay a reservation fee – it might be £500 or £1,000 and is deducted off of your deposit later, in most cases. Once you’ve paid that reservation fee, the countdown starts. You would be expected to secure that mortgage and exchange within a certain period of time – usually 28 days.
So with a new build in particular, it’s important to get yourself mortgage ready as soon as possible.
You’ve demonstrated brilliantly how a mortgage broker can help. Is there anything else you’d like to add?
We’ve touched on a lot of it, but to summarise, a mortgage broker can give you expert guidance and check your eligibility for the different schemes. We can confirm how much you can borrow. It’s well worth having a conversation.
Make sure the broker is whole-of-market so that they can give you access to all the options available to you. We support you through the whole application process and streamline it as possible so you can meet that developer’s deadline.
We help you understand the terms and conditions within your mortgage offer, as well. We plan ahead and think about the timelines. It may be that a new build might not be the right choice for you and a different type of property may be better.
A broker ensures that your mortgage fits your needs and avoids surprises later on. That’s why I’d say you should see us.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.