standard Our Guide to New Build Mortgages 90% LTV

Our Guide to New Build Mortgages 90% LTV

damianyouell If you are looking to buy your home, you have two basic options – a home that has already been built and probably lived in before by any number of previous owners; or a brand new home that is still under construction or on which work has not even yet started (the being called an “off-plan” purchase).

The latter new-build option offers a number of advantages – such as the satisfaction of knowing that you are first people to live in the new home; the “rewards” or discounts offered by many developers e.g. (free white goods or carpets); your choice of fittings and fixtures kitchens and bathrooms; a higher standard of insulation; new-build guarantees – such as the 10-year NHBC warranty; and, the expectation of lower maintenance costs on a new compared to an older property.

Despite all these potential benefits, however, some mortgage lenders are wary and reticent about advancing loans for the purchase of new-build property – making low deposit new build mortgages especially difficult to get.


Why are mortgages for new builds often difficult to obtain?

Although mortgages for new build homes are generally more difficult to obtain, every lender has different criteria, and some may be more inclined to consider your application than others.

Some of the reasons for this general wariness include:

  • a widespread belief amongst mortgage lenders that you are paying for the perceived benefits of advantages of an off-plan new home to the extent that it may be overpriced or at least difficult to assess its true market value (which may actually fall the moment you move in);
  • the website brand-newhomes, for example, makes the point that although the developer might have offered you help with the deposit, that sum is added back to the purchase price – effectively inflating the price you are asked to pay for your new build home;
  • new build developers typically require an exchange of contracts on your purchase within 28 days of your agreeing to buy – an especially tight schedule within which to choose your mortgage lender, make your application and await its approval; and
  • although anxious to press for an early exchange of contracts, developers rarely complete construction of the new home you are buying within the promised schedule – even though your mortgage offer may be valid for six months (and may be extended up to 7 months by some lenders, who may even be prepared to extend the validity by a further 7 months in some instances), this may still not be enough to see you through to completion of the purchase.

Why are new build mortgages different to traditional residential mortgages?

Prolonged building timescales make for the biggest difference between new build mortgages and traditional residential mortgages.

With a traditional residential mortgage your home is already standing and is ready to move in – there is no building timescale to worry about.

A new build mortgage, on the other hand, must rely on completion of the building works and the fact that promised schedules are delayed.

Also, house prices can change between the time a mortgage offer is made and the property is ready to move in – meaning that the lender has to base their mortgage offer based on what they expect the build to be like and market conditions several months down the line.


What is the typical LTV on new builds?

Problems related to building timescales and doubts about the true market value of new build homes influence mortgage lenders’ attitudes towards loan to value (LTV).

LTV is the ratio of the size of the mortgage loan to the purchase price of the property – the greater the loan in relation to the price of the home, the higher the LTV.

Low deposit new build mortgages are more difficult to obtain that standard residential mortgages because of the lower LTV typically required by lenders. Many new build mortgage lenders, for example, offer loans representing a maximum 85% LTV (or as low as 75% on flats). For a new build home costing £200,000, therefore, the maximum mortgage may be £170,000, whilst for a new build flat costing £100,000 the maximum loan might be £75,000.

The good news, however, is that certain lenders are now offering 90% LTV new build mortgages – so on that £200,000 home, you might be offered a mortgage as high as £180,000.

The higher the LTV, of course, the smaller the deposit you need to find – although it is still true that the larger the deposit you have to offer, the wider your choice of mortgage products and the greater your chances of success in obtaining a mortgage.


Are there other ways I can pay less mortgage deposit on a new build?

If you have encountered difficulties in your search for low deposit new build mortgages, you might want to consider the government-funded Help to Buy equity loan scheme.

The Home Owners’ Alliance (HOA) describes some of the benefits – and pitfalls – of buying a new build home through the Help to Buy equity loan scheme, which provides up to 20% in an equity loan on which no repayments are due for the first 5 years. So, the scheme offers up to 20% of the purchase price of your new build home, you must put down a deposit of 5% and the remaining 75% may be financed through a mortgage loan.


What else do I need to consider for new build mortgages?

Before applying for a new build mortgage, it is important to bear in mind potential complications arising from:

Upfront fees

  • when you reserve the plot on which your off-plan new build home is to be built, the developer is almost certain to ask for an upfront fee;
  • if you subsequently change your mind about the purchase, or it becomes impossible to complete the mortgage on time, you may forfeit the fee you paid to the developer;

Timescales

  • the critical nature of building timescales has already been mentioned;
  • developers typically require an exchange of contracts within 28 days of your reserving your new build home – and, clearly, you need an unequivocal mortgage offer before you exchange contracts for the purchase;
  • your mortgage application is likely to take at least 2 to 4 weeks to be considered and approved, so it is important to factor in this delay when choosing your mortgage lender;

either ensure that you have obtained your mortgage offer before reserving your new build plot or at least take the advice of a mortgage broker in choosing a mortgage lender likely to adhere to the timescales at stake.


Next steps – 90% LTV new build mortgages

There are many apparent benefits in buying a new build home – but beware of the drawbacks that make many mortgage lenders generally reticent about arranging loans for the purchase of such off-plan developments.

The issues and potential problems associated with completing your purchase of a new build home mean that many mortgage lenders may offer a lower LTV – so that you need to find a larger amount to put down as a deposit.

With our help here at Needing Advice, however, we may be able to point you in the direction of 90% LTV new build mortgages – putting your purchase of such a home within the same grasp as a conventional residential mortgage.

About the Author

Business protection expert helping business owners of all sizes protect their families and businesses from the effects of death and illness. Advising clients on shareholder protection, key person cover and relevant life policies. Also offering personal clients excellent advice on Mortgages and Protection solutions. From first time buyers to remortgages. All types of clients considered.

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