What is a new build?

A new build is generally considered a home that's brand new and has never been lived in.

But some mortgage lenders have different definitions of new build.

Nationwide defines a new build as a home that’s been built, converted or refurbished within the past 2 years.¹

Clydesdale Bank includes any property not previously occupied, and any property being sold or marketed by the builder or developer.²

New build homes can be bought “off plan”. This means buying a property before it's been built.

New build mortgages

You can buy a new build home with a normal mortgage or with a specialist new build mortgage.

There are some things to be aware of when looking for a new build mortgage:

  • higher interest rates

  • larger deposit requirements

  • timescales

  • lender restrictions

Higher interest rates

You might be charged a higher interest rate on your mortgage when you buy a new build home. 

This is because buyers normally pay a premium for a new build. 

A new build premium just means that it costs more to buy a new build than it would a similar but older home.

This means lenders assume new builds will lower in value over time.

Larger deposit

Lenders tend to set a lower maximum loan to value (LTV) ratio on new build mortgages. 

This means you may need to save a bigger deposit for a new build property.

The LTV is the amount borrowed on a mortgage, compared to the value of property.

For example, if you put down a 20% deposit, you’ll need an 80% LTV mortgage.

Timescales

The mortgage you use to buy a new build will need to work together with the developer’s timescales.

Some issues that might come up are:

  • delays in the build leading to the expiration of your mortgage offer

  • strict completion deadlines set by the developer

Lender restrictions

Some lenders don’t lend on any new builds. Others only lend on certain property types, or limit the number of homes they’ll lend on per development.

A lot of lenders won’t give you a mortgage to buy an off plan new build.

Some lenders have pulled out of lending on new builds during Covid-19.

Chat to a free mortgage broker like Trussle to find out your options.

New builds and Help to Buy

The government’s Help to Buy equity loan is available for buyers looking to buy a new build property. The loan is interest free for the first five years.

If you use the Help To Buy scheme:

  • you need at least a 5% deposit 

  • the Government will lend you 20% of the property value

  • you’ll take out a mortgage for the remaining 75%

Not all lenders offer Help To Buy mortgages.

Learn more about Help to Buy by exploring our easy to understand guide.

Is buying a new build a good investment?

There are upsides and downsides to buying a new build home.

Pros of new build

It’s brand new

You’ll be the first person to live in the property and it’ll be a blank canvas. 

If you buy off plan, you may be able to choose kitchen and bathroom suites and white goods.

Low maintenance

A new build property is unlikely to need major repairs. It’s also likely to be energy efficient with double glazing and insulation.

Affordable

If you use Help to Buy, you’ll only need a 5% deposit to buy a new build. 

Some developers will pay your stamp duty or legal fees when you buy a new build, or part exchange your old home.

Warranties

Most new builds come with a 10 year warranty from either the National House Building Council (NHBC), Local Authority Building Control Warranty (LABC) or Premier Guarantee. 

Cons of new build

Premium pricing

New build homes cost more than similar older properties and often fall in value once they’re no longer deemed “new”.

New builds tend to be smaller than comparable older homes.

Extra costs

New build leasehold flats often come with high service charges.

Deeds for new builds may mention that the owner is responsible for paying estate maintenance charges, or the developer if they extend or change their property.

These costs aren’t regulated and can be high.

It might not be perfect

Poor quality materials or rushed work can result in new builds with “snags” or faults which need fixing.

According to the House Builders Federation, a third of buyers said their new home had more snags than expected.³

Building issues

There may be delays in building your home.

If your new build home is ready before others on the estate, you may have to live alongside ongoing building work.

Do you pay stamp duty on a new build?

You have to pay stamp duty on the total cost of a new build home. 

This’ll be the purchase price plus the cost of things like fitted kitchens and bathrooms.

The developer will report any extras of a financial value to your solicitor who’ll calculate your stamp duty bill. 

Explore our stamp duty guide and calculator to learn more.

Questions to ask when buying a new build

  1. Is the property leasehold or freehold? 

  2. Does the property come with any covenants?

  3. How do I get any snags corrected?

  4. When will I need to pay a deposit, exchange contracts and complete?

  5. What is included with my new build?

  6. What does the new home warranty include?

  7. Can we negotiate on the price?

  8. When will the development be finished?

Step by step guide to buying a new build

1. Sort out your finances

Speak to a mortgage broker to find out how much you can borrow as a mortgage.

Read our guide to Help to Buy and decide whether the scheme is suitable for you.

Work out the other costs involved such as stamp duty, solicitor’s fees and a snagging survey.

2. Find a property

Look round the show home or marketing suite of new builds you’re interested in.  

Ask sales staff the questions above, plus any others you have.

3. Negotiate a price

You can haggle over the price of a new build. 

You might ask for a lower price than advertised, or for extras such as fixtures and fittings to be included in the purchase price.

4. Pay a reservation fee

You’ll need to pay a reservation fee of £500 to £1,000 when your offer has been accepted.

This is usually deducted from the purchase price on completion.

5. Apply for a mortgage

The developer might recommend a mortgage broker but you don’t have to use them.

Look around to compare mortgages from brokers, or go directly to a lender.

6. Instruct a solicitor

You’ll need a solicitor to do the conveyancing or legal work involved in buying your home.

You don’t have to use a law firm recommended by the developer – in fact, it’s best not to.

7. Exchange contracts

Sign, exchange contracts and pay your deposit via your solicitor. 

If you’re buying off plan, the developer will give you a 'short stop' date, which is when they expect to finish work. 

They’ll also give you a 'long stop' date, which is the date the home has to be completed by.

8. Completion

Complete the purchase, get the keys and move in.

Enjoy your new build home!

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Sources

¹ Nationwide: New Build at Nationwide 

² Clydesdale Bank Intermediaries

³ Home Builders Federation: Overwhelming majority of buyers happy with their new build home