Buying a new build home can be incredibly exciting and daunting at the same time. Whether it’s your very first home and you’re starting a new life or you’re looking to get out of an old property into something shiny and new.
This quick guide will help give you the best tips and help avoid any mistakes when thinking about your new build mortgage.
How long do new build mortgages take (timeline)
New build developers can be a bit naughty when it comes to selling their homes, when there’s a hot market they can often demand that you have your mortgage offer well before the house is due to be built, which is bad as it means you’ll need to renew your offer potentially at a higher rate.
Typically, once you’ve put down a deposit – they’ll put a strict deadline to have your offer in place from your lender and an exchange deadline as well. Mortgage applications can take anywhere from 2 weeks to 2 months depending on the lender and you. In scenarios where the lending decision is easy and you have simple finances then it’s possible to do it in 2 – 3 weeks.
However if you have complex finances or you don’t provide all your information quickly, this can take months, rather than weeks so you should always have all your documents prepared and definitely use a broker to help your rather than going on the high street.
High street banks don’t often have the best rates so it’s better to go through a broker who will have access to special mortgages not available to the public.
When do you start paying your new bulid mortgage back?
When you have your new build mortgage sorted and you’re exchanging and completing. Typically you begin paying your new build mortgage back after 30 days – there is a grace period where you move in but no payments are due.
However this first payment is often a bit larger than what your normal repayments will be so make sure you budget for a larger first payment before then settling onto your expected fixed monthly repayments if you have fixed your mortgage.
Ensuring that you spend your first month wisely in the house that extra cashflow will help you free up some expenses as you’re moving in and paying for bits of furniture and items.
How much do new build mortgages cost?
This really depends on the lender and product you’re choosing. Typically there’s a few different ways of choosing the mortgage
– Product Fee Included in Mortgage (You pay interest on this)
– Product Fee Upfront (You don’t pay interest on this)
– No Product Fee but higher interest
Often this will also vary the rates, if you pay a product fee, if you’ve got the cash then that’s the best option usually with the better rates, however you can add the fee to your mortgage but it means you’ll be paying interest on it for the lifetime of the mortgage for the extra £1000 or so that it costs.
Some lenders also give cashback, for example they might have a product fee of £1000 but give cashback of £250 after completion so your product fee is actually abougt £750.
However if you don’t want to pay a fee, then you can always pay no fee and instead pay a slightly higher rate of interest – for the total cost over the term of the mortgage usually this isn’t as good as paying a product fee so remember to do the maths over the entire term rather than just thinking about immediate costs as it might cost you more in the long run.
Can you get a mortgage on a new build?
Lenders often ask for a slightly higher deposit upfront however the market is beginning to change and right now it’s not uncommon to see 90% LTV or 95% LTV with confidence in the market being so high.
There is a risk that if you max out your Loan-to-Value and only pay a 5-10% deposit then if house prices do change then you’ll risk being in negative equity.
Compared to getting a standard 75% LTV mortgage you may also access better rates on the mortgage for being lower risk to the bank, and if there are any property market changes you’re less likely to get into negative equity.
Loan to value is essentially the amount the bank is willing to lend you for their part of the property. If you have a new build that’s worth £300,000 and you have £30k to put down while factoring in legal costs and stamp duty then the bank may be willing to give you the other 90% of the costs.
Naturally the more you’re willing to put in, the better the rates because you’re borrowing less and putting more of your own money into the asset which is lower risk for the bank and they will reward you for that.
Can you port a mortgage to a new build?
This depends on your lender and their criteria but as long as you have a mainstream lender who does lend on new build homes (which almost all of them do) then you shouldn’t have a problem. You might need to pay fees so check your current mortgage terms to understand what those costs might be.
You’ll also need to pay for a new valuation on the property / new build to be able to port your mortgage and especially if you need to change the borrowing amount. When you ask your lender to port your mortgage this essentially means that you’re re-applying for the same deal.
The problem is that the same deal might not exist and there’s no guarantee you’ll be able to get it. You might struggle as well if any circumstances have changed, for example if your salary has dropped, if you’ve gone self employed, if you’re paying for new car finance or a new baby this will also impact your affordability.