What is a new build?

A new build is often considered a home that's brand new and no one has ever lived in.

Some mortgage lenders have different definitions of a new build.

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

Clydesdale Bank includes any property that has not been lived in before. And any property that's being sold or marketed by the builder or developer.²

You can buy new build homes “off plan”. This means buying a property before it's built.

New build mortgages

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

When looking for a new build mortgage look out for:

  • higher interest rates

  • larger deposit requirements

  • timescales

  • lender restrictions

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

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

A new build premium 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 drop in value over time.

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.

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 might lead to your mortgage offer expiring

  • strict completion deadlines set by the developer

Some lenders do not lend on any new builds. Others only lend on certain property types or limit how many homes they’ll lend on per development. 

A lot of lenders will not give you a mortgage to buy an off plan new build.

Some lenders have pulled out of lending on new builds during coronavirus.

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

New builds and Help to Buy

Help to Buy is available for buyers who want to buy a new build. 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 other 75%

Not all lenders offer Help To Buy mortgages.

More about Help to Buy

Is buying a new build a good investment?

There are pros and cons 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 like fridges.

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.

More 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. Often from 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. They often fall in value once they’re no longer “new”.

New builds tend to be smaller than 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 are not 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 that 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 next to 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 sale price plus the cost of things like fitted kitchens and bathrooms.

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

More about stamp duty.

Questions to ask when buying a new build

  1. Is the property leasehold or freehold? 

  2. Does the property come with any agreement conditions?

  3. How do I get any snags corrected?

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

  5. What's 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

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

Decide if Help to Buy is right for you.

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

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.

You can haggle over the price of a new build. 

You might ask for a lower price than advertised. Or to include extras such as fixtures and fittings in the purchase price.

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

This is usually taken away from the purchase price on completion.

The developer might recommend a mortgage broker but you do not have to use them.

Compare mortgages from brokers, or go directly to a lender.

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

You do not have to use a law firm recommended by the developer. In fact, it’s best not to.

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. This is when they expect to finish work. 

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

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