My Guide To New Build Mortgages
When buying a house there are plenty of things to consider, and one of the most important decisions is whether to buy a new build property or an older one. There are upsides and downsides to each property type which I will discuss in more detail later, but one of the important things to note is that new build properties are eligible for the government’s ‘New buy’ scheme which aims to allow buyer the chance to buy a new build with a deposit as low as 5%. Let’s look at new build mortgages in more detail.
Buying a New Build Advantages and Disadvantages
Many people aspire to buying a new build home and it does come with many advantages. However, like most things in life there are also some downsides so it is well worth taking both the advantages and disadvantages of buying a new build instead of automatically planning to go ahead with the purchase. Let’s take a closer look at those advantages and disadvantages.
Advantages of Buying a New Build – One of the advantages of buying a new build is that the warranties begin from the official closing date. This means that items such as included white goods and appliances could well be covered by a 12 month builder’s warranty in addition to the warranties offered by the individual manufacturers. It can be pretty reassuring to know that structural features in your home is covered for up to 10 years.
When purchasing a new build home, it is usually pretty safe to assume that maintenance costs will be at a minimum. If the builders have done their job properly you should have no reason to worry about structural deterioration, leaky roofs or other issues for a good long while.
Believe it or not, in certain areas a new build home can be cheaper than buying an older home. This is usually attributed to the fact that modern homes are built on smaller plots of land and built up over several storeys rather than a sprawling single story place.
New build homes also tend to be far more energy efficient than older homes which is important in an age where environmental responsibility is at the forefront of our minds. It is common fo modern homes to be built with UPVC double glazed windows and fuel efficient boilers.This can also benefit the homeowner in terms of reducing the cost of energy bills.
Disadvantages of Buying a New Build – Although new build homes come with a warranty, it is common for wear and tear or improper use not to be included. That means that if you are living in a family home, the builders may decide that any damage was caused by children or family pets. This can lead to stressful battles with builders in the future.
If you are buying a new build home prior to its completion then you run the risk of it not being ready on the date you had expected which can cause issues if you are moving out of your home to let your buyer move into your existing home. This could lead to expenses if you need to find temporary accommodation and furniture storage. The finished property may also not live up to your expectations as you will only have either a brochure illustration or a show home to look at for reference.
New build homes are often far smaller than older homes which can mean you are getting square footage for your money. There is often a lack of storage space in the property and the plasterboard walls offer little in terms of sound proofing. With smaller plots of land comes smaller gardens and little or no parking.
Loan to Value Limits
Why – Loan-to-value is particularly important for first time buyers looking to get on to the property ladder. Often these buyers are interested in a new build, but do not have a large amount to to offer as a deposit. This means that they need to seek out a mortgage with a fairly high loan-to-value ratio. However, unfortunately some lenders discriminate against new build homes when calculating LTV ratios. It is fairly typical for lenders to offer 90% LTV on a pre-owned home, but if you are buying a new build you may find that the same lender offers anywhere between 50% and 85%. This is because new build homes are considered to be more of a risk for lenders as there is statistically a 10% drop in the resale values on new build homes.
Definition of Loan to Value – Loan-to-Value (or LTV for short) relates to how much your mortgage is in relation to the total worth of the property. It is usually expressed as a percentage figure which shows how much of the value if mortgaged and how much is considered equity.
LTV Example – A property which is valued at around £200,000 might have a mortgage of £150,000. The loan-to-value ratio on this particular property would be 75% while the other 25% represents the £50,000 equity.
Types of Warranty and Insurance Policies for New Builds
As previously noted, new build homes often come with a builder’s warranty which lasts anywhere from 1 to 10 years from the completion date and covers structural faults and suchlike. There are also various other types of warranty and insurance which can be used to cover a new build.
New Home Warranty – This is the ‘builder’s warranty’ which is usually provided by the developers and builders of the new build home. It gives a 10 year structural warranty which is a requirement for selling any new build.
Completed House Warranty – When a home is sold which has been built within the past 7 years, and for whatever reason does not have a structural warranty in place then most mortgage lenders will insist on a structural survey being carried out and a new policy put in place.
Structural Defects Insurance – There are occasions when a new build structural warranty becomes void, for example if the builder goes out of business a year after completing the build and is no longer available to rectify any repairs covered by that warranty. In this case structural defects insurance can give the homeowner some peace of mind. THese types of policies are transferable so a new homeowner can take them on if you were to sell the property on. Other names for structural defects insurance include : home defect insurance, latent defect insurance, new home defect insurance and structural warranty.
Self Build Warranty – Some individuals buy a plot of land and build their own home. While technically still a new build, the homeowner themselves are responsible for any structural issues that occur. A structural warranty can be obtained by taking out self build insurance.
New Build Flats and Apartments VS. New Build Houses
Once you have settled on choosing a new build, you will then need to choose the type of property, that is – do you want a flat/apartment or a house?
Since many people seeking out a new build are young couples and first time buyers, an apartment or flat often seems much more attractive. This is becoming even more true at present because so many new build apartments are designed as complexes and gated communities which are perceived as not only stylish, but more secure. However, buyers must beware as these complexes do come with some unique factors that must be taken under consideration.
Flats and apartment building comprise of 6 or more individual homes within a single building. This means that there are common areas to be taken care of including stairwells, lifts, gardens and roofing. All repairs need to be split equally between all of the apartment owners which can end up being complicated. In most cases there will be a monthly maintenance fee to cover cleaning and gardening along with minor repairs, but often this does not cover larger structural repairs. This means that if something goes wrong down the line you may end up liable for your share of the repairs. It is also important to understand that you will have less privacy as you will share a garden and you will have more neighbours than you would in a house.
When purchasing a new build house instead of a flat or apartment you will have the sole responsibility for maintenance, but you should have builder’s warranty or structural defects insurance to cover major repairs. You will also have more privacy and freedom. It is important to weigh up the pros and cons of each type of property before making a decision.