New Build Mortgages

What is a new build home?

The term ‘new build’ applies to a home that has been built, converted, or renovated in the past two years and is being sold for the first time since that work has been carried out.

A mortgage can be secured on a property that has not yet been built or is only partially complete. These are off-plan mortgages and it can be more complicated to obtain a mortgage offer.

Why buy a new build home?

Reliability

A new build home is brand new, so there shouldn’t be any issues with things not working as they should. That isn’t to say things can’t go wrong, but new build homes should be covered by a suitable warranty, such as NHBC. This means the builder is responsible for fixing defects and structural problems for a certain period of time.

Energy efficiency

New build homes tend to be much more energy efficient than older ones. This is because of modern building methods, the materials used in their construction, and their design. Some may even come with solar panels. 

All this means new build properties are cheaper to run than older houses. The Home Builders Federation says a new build home could save owners £3,000 in annual energy costs compared to an older property!

Furthermore, homes that are more energy efficient can sometimes qualify for ‘green’ mortgages. Green mortgages are usually reserved for properties with an Energy Performance Certificate (EPC) rating of A or B. They tend to offer better interest rates than standard mortgages.

No upward chain

You won’t be buying off someone who needs to find somewhere else to move to, so you get peace of mind that the seller won’t pull out of the chain.

Special purchasing schemes

Some builders will offer properties for sale via special schemes such as Deposit Unlock, which could help you buy a new build home with just a 5% deposit.

Other schemes include First Homes (for first time buyers only) and Shared Ownership.

In addition, you might benefit from things like upgraded white goods or flooring.

What are the downsides of buying a new build?

Cost

Anything new tends to come at a premium. New build homes tend to be more expensive than older properties. You might also have to pay a reservation fee which is typically a few hundred pounds.

Delays

If you’re buying a home that hasn’t been built yet, there’s no telling when you’ll get the keys. The builder will have a timescale to work to but bad weather or a shortage of materials could extend it by months. This then runs the risk of your buyer pulling out, if you’re having to sell your current home, or your mortgage offer expiring.

Space

Developers are in it to make money, which means building and selling as many houses as possible. The garden and rooms may be smaller than those of an older property. If the house is detached, it might only be by a very narrow space at the side of the house.

About new build mortgages

Buying a new build home with a mortgage can be more complicated than mortgaging an older property.

For starters, you might need a bigger deposit. As mentioned above, new build homes are often sold at a premium, and lenders can be concerned about their value dropping. The last thing they want is for you to be in negative equity – that’s when you owe the bank more than the house is worth. So they might insist on a bigger deposit to try and avoid this. 

When you reserve your new build home, you will usually be asked to agree to exchange contracts by a certain date. This could be in as little as 28 days. The house might be nowhere near ready at this point! You will need a mortgage offer before exchanging contracts, however, and a typical mortgage offer is only valid for six months. If the build is going to take longer than that, you will either need an extension, which isn’t guaranteed, or a new mortgage offer. A new offer would be subject to rates available at the time of the new application.