How do new build mortgages work?

Getting a mortgage is a part of the process for most house purchases, and it’s no different for new build homes. We spoke to a new build mortgage expert to find out all about mortgages on new builds.

Whether you’re taking your first step onto the housing ladder, or you’ve decided to buy a new build for the first time, you probably have some questions about how the mortgage process works. We asked Oliver Peace, Managing Director and Founder of James Leighton Financial Services, to shed some light on the topic.

How do new build mortgages work?

New build mortgages work in the same way as mortgages for older properties. You apply for a mortgage based on your income, credit history, and the value of the property you want to buy.

The lender will assess your affordability and suitability and make you a mortgage offer if you meet their criteria. You then pay a deposit and exchange contracts with the developer and complete the purchase when the property is ready to move in.

Are new build mortgages different to other mortgages?

New build mortgages are not fundamentally different from other mortgages, but they may have some specific features or requirements. For example, some lenders may offer higher loan-to-value (LTV) ratios, longer mortgage offers, or lower interest rates for new build properties.

However, some lenders may also ask for larger deposits, impose stricter criteria, or limit the types of new build homes they will lend on.

How much can I borrow for a new build?

The amount you can borrow for a new build depends on several factors, such as your income, outgoings, credit score, deposit size, and the LTV ratio of the mortgage.

Generally, lenders will lend up to 4.5 times your annual income, but this may vary depending on your circumstances and the type of property you are buying.

Some lenders may offer higher LTV ratios for new build homes, meaning you can borrow more with a smaller deposit.

Are new build mortgages cheaper?

New build mortgages are not necessarily cheaper than mortgages for older properties. The interest rate you pay will depend on the lender, the type of mortgage, and the LTV ratio.

Some lenders may offer lower rates for new build homes to attract customers, but others may charge higher rates to reflect the perceived higher risk of lending on a property that has not been lived in before. You should compare different mortgage deals to find the best one for your situation.

How long does a mortgage offer last on a new build?

A mortgage offer is usually valid for six months, but some lenders may extend this to nine or 12 months for new build properties. This is because there may be delays or uncertainties in the construction process that affect the completion date of the property.

However, you should check with your lender how long their offer lasts and whether they will need to reassess your application if it expires before you complete the purchase.

What length mortgage term should I choose?

The length of your mortgage term depends on your personal preferences and circumstances.

 A shorter term means you will pay off your mortgage sooner and pay less interest overall, but your monthly payments will be higher. A longer term means you will pay lower monthly payments but more interest over time, and it will take longer to own your home outright.

You should choose a term that suits your budget and goals.

How much deposit do I need to save for a new build?

The deposit you need to save for a new build depends on the LTV ratio of the mortgage you are applying for. The higher the LTV ratio, the lower the deposit you need.

For example, if you are buying a £200,000 new build home with a 95% LTV mortgage, you will need a £10,000 deposit (5% of £200,000).

However, some lenders may require larger deposits for new build properties than for older ones. You should check with your lender what their minimum deposit requirement is.

What is an LTV ratio?

An LTV (Loan to Value) ratio is the percentage of the property value that you are borrowing from the lender.

For example, if you are buying a £200,000 new build home with a £20,000 deposit and a £180,000 mortgage, your LTV ratio is 90% (180,000 / 200,000 x 100). The lower your LTV ratio, the lower the interest rate and the monthly payments you will pay on your mortgage.

What is stamp duty?

Stamp duty is a tax that you pay when you buy a property in England or Northern Ireland. The amount you pay depends on the value of the property and whether you are a first-time buyer or not. You can use this calculator to work out how much stamp duty you will have to pay: Stamp Duty Land Tax Calculator

What extra fees will I have to pay?

Fees for new build mortgages are no different to normal mortgages. Lenders will usually offer a range of different mortgage products with different product fees, ranging typically between £0 and £1,500. These can be paid on application or added to the mortgage balance.

As with mortgages for older properties, some lenders will also charge a fee for the valuation of the property. These can range between £0 and £1,000. Your mortgage adviser will be able to advise you on which mortgage deal best suits your needs.

Are there any schemes I can use to buy a new build home?

Yes, there’s a range of great schemes that can help you save money with a new Persimmon home, for example by reducing the deposit you need or by reducing your moving costs.

Staircase Shared Ownership: This scheme allows you to buy a share of a new build home (between 10% and 75%) from a housing association and pay rent on the remaining share. You can then increase your share over time until you own 100% of the property.

Deposit Unlock: This scheme helps you buy a new build home with a 5% deposit. It provides lenders with a guarantee on mortgages up to £750,000, enabling borrowers with smaller deposits to access more competitive mortgage products.

Part Exchange: If you have a home you’re trying to sell, you could qualify for Part Exchange. Using the scheme, Persimmon will organise the sale of your home from start to finish. They’ll appoint estate agents on your behalf and pay the fees, leaving you free to buy your new home.

How do Shared Ownership mortgages work?

Shared Ownership mortgages are mortgages that allow you to buy a share of a new build home from a housing association and pay rent on the remaining share. You can then increase your share over time until you own 100% of the property – find out more about Staircasing here.

To qualify for a Shared Ownership mortgage, you need to have a household income of less than £80,000 (£90,000 in London) and be a first-time buyer or a previous homeowner who can no longer afford to buy in the usual way.


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Looking for more information about mortgages? Visit James Leighton Financial Services for specialist new build mortgage advice. 


You might find these other articles helpful:

Tips for applying for a mortgage

A guide to mortgages for first time buyers

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