Purchasing a new build property is the aspiration of many first-time buyers. However, there are a few key differences in the mortgage process that homebuyers should bear in mind before taking the plunge.
In this blog post, we share some pros and cons of new build mortgages as well as some tips on how to secure a good deal.
What are the benefits of purchasing a new build home?
A new build home relates to a property built, either individually or on a multiple-plot plan, within the last two years and has yet to be domestically occupied. With this in mind, there are a variety of benefits that come from purchasing a new build property, such as;
Customisability: A new build home offers a blank canvas, allowing features such as tiling, flooring and fixtures to be customised to align with your own personal style.
Lower utility bills: Due to modern building techniques and better insulation, new build properties tend to be more energy efficient than period properties which means lower utility bills and a better investment in the long run.
A chain-free property: If a new build property has never been occupied, it will be chain-free. Because you are not reliant on any other buyers, this can speed up the house-buying process.
What are the disadvantages of purchasing a new build home?
With every big investment, there are always drawbacks that need to be considered. In the case of new build homes, some of the disadvantages are;
Reservation fee: In order to secure a new build, developers usually require a reservation fee which holds the property for an agreed amount of time until the sale goes through. It is recommended that you get a mortgage-in-principle before putting down a reservation fee.
The new home premium: Because you are buying a property ‘brand-new’, it will rapidly fall in value over the next few years. For that reason, mortgage lenders are usually more strict on how much they are willing to lend.
Potential delays: If you purchase the property during the ‘off-plan’ stage, the building schedule can be delayed due to adverse weather conditions or a shortage of subcontractors. This can push the move-in date back which can be frustrating for buyers.
What should I be aware of with a new build mortgage?
If you are considering a new build mortgage, here are some key considerations before you put down a reservation fee on a property:
Your mortgage offer will probably only last for six months
- Your mortgage offer will have a validity period of around six months. It may be possible to get an extension if the property is not complete within that time period, however this is dependent on the lender.
- You may require a higher deposit. It is common for lenders to set a lower maximum loan-to-value (LTV) ratio for new build mortgages, meaning that buyers may need a larger deposit. This is because new build properties decrease in value in the first few years, and lenders view this as a risk.
- The property price can change during the build period. Homebuyers should be aware that developers may respond to changing market conditions and hike the asking price of a new build property. The seller has the prerogative power to change the price depending on supply and demand for the properties.
- Lenders may be wary of developer incentives. Developer incentives are a marketing initiative to help attract more buyers. From garden landscaping to a high-spec kitchen, these offers can seem enticing, but are not often viewed favourably by lenders. It is important that any developer incentives are declared to your mortgage lender. Most lenders accept incentives that are up to 5% of the property’s purchase price.
Work with The Mortgage Brokerage to secure your new build mortgage
Because lending criteria for new builds can be strict and the mortgage process is more complex, applicants can benefit from the advice and support of mortgage brokers who can negotiate with lenders on the buyer’s behalf.
As an independent mortgage broker, we have a whole market view of the deals available to those apply for new build mortgages and can find the best competitive rates.
For support securing your new build home, contact the team today on 0191 4326177 or leave us a message here – our advisors will get back to you quickly!
