First Time Buyer New Build Mortgage
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First Time Buyer New Build Mortgage
Lee and Neezam talk us through the mortgage process for First Time Buyers.
Podcast approved by The Openwork Partnership on 16/08/2024.
What are the requirements for getting a mortgage on a new build?
Firstly, you need a form of deposit. Usually the minimum deposit with most lenders would be 5% of the purchase price, but with some lenders there are certain limits if you’re buying a flat. You also need enough funds to cover the fees involved in buying a property.
There may be stamp duty if you’re over a certain threshold, although most people will probably qualify for the current First Time Buyer stamp duty incentive. In terms of getting a mortgage, that’s where we come in.
How much deposit do I need for a mortgage on a new build property? Are there any differences for First Time Buyers?
We’re talking now in July 2024 and the minimum deposit generally speaking is 5% of the property value. But there are some challenges on new build at the lower end. Not all banks offer 5% deposit mortgages on New Build properties.
If it’s a flat, it becomes even more difficult. But this is where a qualified mortgage broker could help. We deal with multiple lenders and will be able to advise and guide those that are most suitable for the new build property that you’re buying.
Can I use government schemes to get a mortgage on a new build?
The big one that is no longer available is the Help to Buy equity loan scheme, which was very popular. But there are still some schemes out there, at the time of recording in July 2024.
With the First Home scheme you’re buying a property at a discounted price if you qualify, and you’ve got the Deposit Unlock scheme as well. That’s not a government backed scheme – some lenders and new build developers run this themselves. We’ve got some pages specifically on that on our site to dive into how it works in a bit more detail.
But generally, a developer will have a rough idea of whether a scheme is available on the properties you’re looking at, and a mortgage advisor could tell you if you qualify on the mortgage side as well.
What types of new build properties can I get a mortgage for?
You could get a mortgage for most types of properties, but if it’s a lower deposit, it could be a little bit more challenging for some property types. For standard terraced or detached houses and flats, most lenders could lend on those types of properties.
It becomes a little bit more foggy if there’s unusual property construction. Most new builds are made with bricks and tiles, but you do get the odd quirky development using different materials or construction. Not all lenders lend on ‘non standard construction’, so that’s something to be wary of.
As new builds can be a little bit more challenging, I suggest just speaking to a broker before you press any buttons.
What should I consider when choosing a new build mortgage advisor?
You might just think you could use any mortgage advisor when buying a new build property. But actually, there are some differences when it comes to getting a mortgage on a new build. Some banks and building societies won’t lend you as much as they would on a flat as for a house, for example, so you need a bigger deposit.
A mortgage advisor with a lot of experience of helping buyers with new build properties will help you make sure you don’t make any mistakes.
If you’re getting an incentive from a developer – for example you manage to negotiate free legals or cashback – that needs to be approved by a mortgage lender. There are certain limits. You might think the bigger the incentives the better, but actually it might hinder your ability to get a mortgage. It might sound strange, but it is something that catches people out.
Also, when is the property due to be completed? Getting the timing right is important – in terms of when you apply for a mortgage and making sure that your mortgage offer is still valid when you need the funds at the end stage of the purchase. They’re some of the things to look out for, and to ask your advisor about.
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Are there any special considerations or terms and conditions I should be aware of with getting a mortgage on a new build property?
If you’re buying an older property, you would go straight to an agent into negotiations and be putting offers in left, right and centre. With new builds, it’s different. You generally have to reserve a property, and you might have to pay a deposit of a few hundred pounds or £1000 to do that.
Timescales are really important with new builds. So when you reserve that property, sometimes the builder will stipulate when you need to exchange contracts. Exchanging contracts is where you’re both legally bound to buy or sell the property. That’s when the actual purchase is locked in.
They normally say you need to exchange contracts within 28 days. That’s very soon compared to typical purchases, where it could often be a couple of months.
Obviously, they sell new build properties before they’re even built. So you might have seen a sales home and some paperwork, but your plot isn’t even being built on yet. Your property might not be available for six months, 12 months or longer.
It’s really important to understand when the property is expected to be finished. All of these things play a big part in your mortgage – and how long your mortgage offer needs to be valid for.
What are the benefits and drawbacks of new build homes?
There are quite a lot of benefits and drawbacks, and it would take a while to go through them all. But to start with a few advantages, it’s a brand new property. You’re the first ones to live there, and most developers have an aftercare service.
If you have any issues that need rectifying, like a loose pipe or a crack in the wall, it will be addressed. That is a big benefit to new build that you don’t get with an old property. Obviously, you also get to choose what goes in the property in terms of the kitchen and bathroom and flooring.
On the downside, often the plots are smaller – there might be smaller gardens or rooms and the property may have less character. It’s probably more cosmetic stuff. Occasionally we hear nightmare stories of problems with new builds, so doing your research on the developer and reading their reviews is important.
I did this myself, and asked one of the neighbours on the street before I bought a property to ask about their experience with the developer.
How long does the mortgage application process for a new build property typically take?
A mortgage application process for a new build property generally will take around two to four weeks. It depends on the lender you’re applying with.
Often a developer will ask you to exchange contracts within 28 days. To do that your solicitors normally need a valid mortgage offer, so you need to have that offer within 28 days. It’s usually OK with most banks and building societies, certainly on the high street.
But if your circumstances are not straightforward you could expect it to take longer. Any lender will be looking to carry out the usual checks around affordability, evidence of your income and deposit, credit checks and checks on the property. If they’re happy with all of that, they should be in a position to offer you a mortgage.
A mortgage advisor will share what the timescales and service levels are currently like with the lenders we’re applying with at the time. Some lenders get busier and take longer – and vice versa. But with mainstream lenders, between two and four weeks is when you could expect to get approved.
How do I get a mortgage on a new build property as a First Time Buyer?
The key element here is pre-planning. You should do this whether it’s for a new build or an older property, but the emphasis is even stronger on that pre-planning with new builds, because of those time constraints.
So speak with a mortgage broker as soon as you’re thinking about buying a new build. Don’t even go and view anything or get too excited just yet, speak with a mortgage broker first.
Understand how much you could borrow, the types of properties you’re looking at, and what deposit is required. You could get yourself pre-approved for a mortgage before you go and see the developer. Then you’re well equipped and to view those new build properties and start getting excited when you’re walking around.
What else do we need to know about buying a new build property as a First Time Buyer?
We help a lot of First Time Buyers buy new build properties. As we’ve said, there are lots of things you could get caught out on. Just having someone who’s experienced – and not working for the developer – will help guide you through.
We help you with the entire process of buying a new build property, because it could be lengthy. If you’re buying a property off plan or if there are delays… and that’s one thing you don’t get with older properties because the property exists. It’s not being built before your eyes.
Having someone at your side to lean on for guidance and support is where we could help you.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Approved by The Openwork Partnership on 16/08/2024.
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