New Build Mortgages

Are there any incentives available on a new build?

A lot of developers do offer some incentives. It depends on the market. When the market is very strong developers might just say ‘that’s the price, take it or leave it.’ If the market’s a bit softer, some developers will give you some cash back, pay some stamp duty or throw in some furnishings or fixtures. 

After the financial crisis a CML disclosure form was brought in that must be completed for all lenders. CML stands for Council of Mortgage Lenders. It’s a code of conduct that all mortgage lenders sign up to make sure mortgage standards are held very high. 

If the incentives are worth more than 5% of the purchase price your mortgage application is flatly declined. If you buy cash it might be different. In recent years the market has been strong, so that level of incentive is unlikely. 

What help or schemes are available on new build properties?

The Help to Buy Scheme is winding up at the end of October so I won’t expand on that in any great detail, but I suspect some developers will be offering similar things. It’s an equity share in the property, which is different from a loan. 

How it works today if you’re in London is that you get up to a 40% deposit from the government. This is limited to 20% outside of London. It might be that the developers step in to do the same. If you’re buying a £100,000 property, you would receive £20,000 as a 20% deposit. If the property value doubles, that amount becomes £40,000 – because it’s an equity share. So you could have to pay back more in the long run.

Another scheme that’s been running for a long time now is Shared Ownership. It’s offered by housing associations and allows you to buy anywhere between 25% to 50% of a property on day one, and rent the remainder. You have to factor in not just the mortgage payment but also the rent. I’m a big fan of shared ownership because you can do something called staircasing, which lets you buy extra chunks of the property over time, until you own the whole thing outright. 

In the new build world there can often be family help, and we commonly see something called Joint Borrower Sole Proprietor, which is effectively a guarantor mortgage. This is where parents or siblings, if they have a very strong income, can come on a mortgage and help you buy. They’re not named on the property, so there are no stamp duty or tax issues. It’s a great way of helping people get into the market. 

What are the pros and cons of new build mortgages?

A lot of it is down to preference. Some people just don’t like new builds, some people really love them. Aside from that, a big pro is that most new homes are very energy efficient and many mortgage providers offer green mortgages. If you get an A or B efficiency rating on the property you will gain a discount on mortgage rates of around 0.1% or they might waive the application fee which could save up to £1000.

You also often get a 10 year guarantee which is really good if you buy a home and something major goes wrong. You can also have some input into the build configuration and you often get to choose carpets, tiles, kitchen units and things like that. 

On the less positive side there’s the historical reputation element that we touched on earlier, which means some people have a slight negative perception of new builds. I also think more could be done to help borrowers secure mortgages earlier, or speed up the process. 

Also, as a country we’re not on board with modern construction methods – there’s lots of ways to build new homes that are quicker, cheaper and more energy efficient and just as long-lasting… but banks won’t lend on them. That’s a real shame. I really hope that the new build market will trigger some of these construction methods because there are great ways of building cheaper, great homes which are really needed.

How can a mortgage broker like Rose Capital help?

New build mortgages can be complicated. There’s the timing, the type of property, the construction, even the type of developer – these are all mortgage factors. A broker is worth their weight in gold because we can very quickly get you what you need. 

We will help you get a mortgage secured as early as possible to give you peace of mind. Plus, brokers get a lot of exclusive rates, much better terms and sometimes better criteria. We work with providers where we can get mortgage offers for 12 months, not six, which really helps. 

So if you want the best outcome and don’t want to spend hours and hours googling, please talk to a broker. We’ll make the process a lot easier and ultimately get you the right outcome, which is what it’s all about.

Your property may be repossessed if you do not keep up with your mortgage repayments. 

There may be a fee for mortgage advice, however the precise amount will depend on your circumstances. If a fee is charged, a typical amount is £495.