When it comes to buying a home, there are typically two basic options: purchasing an existing home that has already been lived in by previous owners or opting for a brand new home that is still under construction or on which work has not yet begun (known as an “off-plan” purchase). While there are many advantages to choosing a new-build home, such as being the first people to live in the property, receiving discounts or “rewards” from developers, having the ability to choose your own fittings and fixtures, and expecting lower maintenance costs, some mortgage lenders are hesitant to advance loans for the purchase of new-build property. This can make it especially difficult to obtain low deposit new-build mortgages. In this article, we will explore the reasons for this difficulty in obtaining new-build mortgages and discuss the differences between new-build and traditional mortgages, as well as the typical LTV on new-builds.
Explanation of the two basic options for buying a home (existing vs. new-build)
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 the 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.
Highlighting of potential benefits of new-builds
When it comes to buying a new-build home, there are many potential benefits that can make it an attractive option. For example, purchasing a new-build home allows you to be the first person to live on the property, which can be a significant draw for many buyers. Additionally, many developers offer “rewards” or discounts for new-build purchases, such as free white goods or carpets. Another potential benefit of new builds is the ability to choose your own fittings and fixtures for kitchens and bathrooms. Additionally, new-build homes often have a higher standard of insulation and come with new-build guarantees, such as the 10-year NHBC warranty. Furthermore, new-build homes typically have lower maintenance costs compared to older properties. All these factors combined make new builds a great option for many buyers.
If you are interested in getting a mortgage on new build flats, you can read our article “The Ultimate Guide to Securing a Mortgage for a Block of Flats in the UK.”
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 the following:
- 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-new homes, 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 newly built home;
- new build developers typically require an exchange of contractsThe point at which the buyer and seller exchange signed cont... 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 completionThe point at which a property purchase is finalized and owne... of the purchase.
Differences between New-Build and Traditional Mortgages
One of the biggest differences between new-build and traditional mortgages is the building timescales. With a traditional residential mortgage, the home is already standing and ready to move in, whereas with a new-build mortgage, the home is still under construction, and completion relies on the progress of the building works. This can create uncertainty and added stress for the buyer, as the completion date may be subject to change.
Another difference between new-build and traditional mortgages is that house prices can change between the time a mortgage offer is made and the property is ready to move in. This means that the lender must base their mortgage offer on what they expect the build to be like and market conditions several months down the line. This can add extra risk for the lender and make the process of obtaining a new-build mortgage more difficult.
In addition, it’s important to note that building timescales can affect the LTV that lenders are willing to offer. In general, lenders tend to offer lower LTVs on new-build properties than on traditional properties because of the added risk of the building being delayed.
In summary, while new-build mortgages can offer many benefits, they also come with additional challenges and considerations that are not present with traditional mortgages.
If you are interested in getting a new build mortgage 90 LTV, you may need to contact a specialist mortgage broker to help you with the application process.
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 the 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.
Typical LTV on New-Builds
In the UK, the typical LTV on new builds can vary depending on the lender and the specific circumstances of the borrower. However, in general, lenders tend to offer lower LTVs on new-build properties than traditional properties because of the added risk of the building being delayed or the market conditions changing.
For example, it’s not uncommon for lenders to offer LTVs of around 75-80% on new-build properties, compared to 90% or higher on traditional properties. This means that borrowers would need to provide a larger deposit for a new-build property in order to secure a mortgage.
Additionally, it is important to note that the LTV offered by the lender may also depend on the developer or builder of the property, as well as the location of the development. Some lenders may be more willing to offer higher LTVs on properties from reputable developers in desirable locations, while other lenders may be more cautious and offer lower LTVs.
In any case, It is always important to shop around and compare different lenders to find the best deal on a new-build mortgage.
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 valueThe ratio of the mortgage amount to the value of the propert... (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 equityThe difference between the value of the property and the amo... 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:
- 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;
- 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.
Is it possible for first-time buyers to get a new build mortgage with a 90% Loan to Value?
Yes, it is possible for first-time buyers to get a new build mortgage with a 90% Loan to Value (LTV). However, it is important to note that lenders may require additional criteria to be met in order for the loan to be approved. This could include having a good credit score and/or having a guarantorA person who guarantees to repay a mortgage if the borrower .... It is also important to bear in mind that the higher. The LTV, the higher the interest rate is likely to be.
If you are confused with a first-time buyer who wants to start on the property ladder in the UK, you can contact an exclusive rates mortgage broker who can secure you a suitable mortgage deal.
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.
FAQs – new build mortgages with 90% LTV
What is a new build mortgage?
A new-build mortgage is a type of mortgage that is used to finance the purchase of a new-build property that is still under construction or on which work has not yet begun.
What is a 90% LTV mortgage?
A 90% LTV (loan-to-value) mortgage is a mortgage in which the borrower is able to borrow up to 90% of the value of the property. This means that the borrower will need to provide a deposit of at least 10% of the property value.
Is it possible to get a 90% LTV mortgage on a new-build property?
Yes, it is possible to get a 90% LTV mortgage on a new-build property, however, it can be more difficult to obtain than a traditional mortgage, as lenders may be more cautious about the added risk of the building being delayed or the market conditions change.
Are there any additional fees associated with a new-build mortgage?
Yes, there may be additional fees associated with a new build mortgage, such as fees for valuation and legal work. It’s important to be aware of these fees and factor them into your budget when applying for a new-build mortgage.
Are there any special requirements for obtaining a new build mortgage?
Yes, there may be special requirements for obtaining a new build mortgage, such as a shorter completion date or a requirement to use a specific solicitor or conveyancer. It’s important to check with the lender for any specific requirements before applying for a new-build mortgage.
How long does it take to get a new build mortgage approved?
The timeline for approval of a new build mortgage can vary depending on the lender and the specific circumstances of the borrower. However, the process can take longer than traditional mortgages due to the added complexity of assessing the value of a property that is not yet built.
Is it possible to get a fixed-rate or variable-rate new-build mortgage?
Yes, it is possible to get a fixed-rate or variable-rate new-build mortgage. It’s important to consider your own personal circumstances and financial goals when deciding which type of mortgage is right for you.