New Build Mortgages Guide

New Build Mortgages: What Lenders Don't Tell You

New build properties come with unique mortgage challenges that can catch first-time buyers off guard. Here's everything you need to know to navigate the new build mortgage process successfully.

What Makes New Build Mortgages Different?

Unique Challenges:

1. Valuation Concerns

   • New builds often valued lower than purchase price
   • "New build premium" of 10-30% over resale value
   • Can affect loan-to-value and deposit requirements

2. Completion Date Uncertainty

   • Delays are common in new build developments
   • Mortgage offers expire (usually 3-6 months)
   • May need offer extension or reapplication

3. Help to Buy Schemes

   • Equity loans complicate mortgage structure
   • Not all lenders accept Help to Buy
   • Different lending criteria apply

4. Retention Issues

   • Lenders may retain funds for incomplete snagging
   • 2.5-5% typically held back
   • Released once issues resolved

New Build Valuation: The Hidden Trap

The Problem:
Developers price new builds at premium (10-30% above similar resale properties). Surveyors value them at market rate, not developer price.

Example Scenario:

• Purchase price: £300,000
• Surveyor valuation: £270,000
• Your 10% deposit: £30,000
• Result: You only have 11% deposit based on valuation, not 20% as planned

How This Affects Your Mortgage:

Scenario	Purchase Price	Valuation	Your Deposit	Actual LTV	Impact
Expected	£300,000	£300,000	£30,000 (10%)	90%	Standard rates
Reality	£300,000	£270,000	£30,000	89%	Better rates!
Problem	£300,000	£270,000	£20,000	93%	Worse rates

Protecting Yourself:

1. Budget for Higher Deposit

   • If buying new build, add 15-20% buffer to deposit
   • Ask developer for recent valuations on similar plots

2. Valuation Downgrade Clause

   • Negotiate contract clause allowing withdrawal if valued lower
   • Some developers offer deposit protection if valuation short

3. Choose Established Developer

   • Major developers (Barratt, Taylor Wimpey) typically value closer to price
   • Smaller developers may overprice more significantly

Help to Buy Equity Loans

How It Works:

• You pay: 5% deposit
• Government loans: 20% (40% in London) equity loan
• Mortgage: 75% (55% in London)
• Interest-free: First 5 years
• Interest after year 5: 1.75% plus RPI increases annually

Not All Lenders Accept Help to Buy:

Lenders Who Do Accept:

• Nationwide
• Barclays
• HSBC
• Santander
• NatWest
• Most major high street banks

Important Restrictions:

• Some lenders cap maximum equity loan at 20% (issue for London buyers)
• Affordability calculated on full mortgage payment (post year-5 rates)
• Stricter criteria than standard mortgages

Help to Buy Mortgage Calculations:

£300,000 New Build Property:

• Your deposit (5%): £15,000
• Help to Buy loan (20%): £60,000
• Mortgage (75%): £225,000

Years 1-5:

• Mortgage payment: £1,264/month (at 4% rate, 25-year term)
• Help to Buy payment: £0
• Total: £1,264/month

Year 6 onwards (assuming 20% RPI increases over 5 years):

• Mortgage payment: £1,264/month
• Help to Buy payment: £105/month (1.75% of £72,000)
• Total: £1,369/month

Year 7 onwards (RPI rises continue compounding):

• Help to Buy costs escalate each year
• By year 10, could be £150+/month for equity loan portion

Help to Buy Exit Strategy:

Option 1: Repay Equity Loan

• Can repay 10-100% of loan anytime
• Must repay same % of current property value
• Example: £60,000 on £300,000 = 20%. If now worth £350,000, repay £70,000 for full redemption

Option 2: Remortgage to Repay

• After 2 years, remortgage to higher LTV
• Use released equity to repay Help to Buy
• Requires property value increase or pay down of main mortgage

Option 3: Sell Property

• Help to Buy repaid from sale proceeds
• Watch for property value decreases (you owe % not fixed $)

Mortgage Retention on New Builds

What Is Retention?

Lenders hold back 2.5-5% of mortgage funds until:

• All snagging issues resolved
• Property completed to acceptable standard
• Re-inspection confirms fixes

Example:

• Mortgage approved: £250,000
• Retention (3%): £7,500 held back
• Released on completion: £242,500
• Retained: £7,500 (released post-snagging)

Managing Retention:

Before Exchange:

1. Clarify lender's retention policy
2. Ensure developer aware retention likely
3. Negotiate completion payment structure

After Completion:

1. Complete snagging inspection within 7 days
2. Provide list to developer immediately
3. Chase fixes aggressively
4. Request lender re-inspection once done
5. Retained funds usually released within 2 weeks

Completion Date Delays

Average new build delay: 3-6 months from projected completion

Mortgage Offer Expiry Issues:

Standard Mortgage Offer:

• Valid for 3-6 months from offer date
• Must complete within this period
• Extension usually possible once (further 3 months)
• Re-application needed if expired

Protecting Yourself:

1. Don't Apply Too Early

   • Wait until 3-4 months before realistic completion
   • Ask developer for track record (do they complete on time?)

2. Extension Options

   • Check lender policy on extensions
   • Usually one free extension allowed
   • May need re-valuation or credit check

3. Rate Protection

   • If rates rising, lock in now even if early
   • Extension preserves your rate
   • Re-application means current (possibly higher) rates

New Build vs. Resale: Mortgage Comparison

Feature	New Build	Resale Property
Valuation accuracy	Often down-valued	Usually matches price
Deposit needed	15-20% safer	10-15% usually fine
Completion certainty	Delays common	Rarely delayed
Retention	2.5-5% typical	Rare
Lender choice	Slightly restricted	All lenders
Legal complexity	Higher (leasehold, management)	Standard

Leasehold New Builds

90% of new build flats are leasehold

Mortgage Implications:

1. Lease Length Requirements:

   • Most lenders need 80+ years remaining
   • Some want 125+ years for new builds
   • Short leases (under 80) hard to mortgage

2. Ground Rent Restrictions:

   • Lenders refuse ground rents doubling faster than 20 years
   • New legislation caps ground rents at £10/year (from June 2022)
   • Check your specific lease terms

3. Management Company Concerns:

   • Lenders check management company viability
   • High service charges (£3,000+/year) affect affordability
   • Some lenders refuse properties with certain management firms

Best Mortgage Strategy for New Builds

1. Save Extra Deposit

• Target 20% instead of 10%
• Covers valuation shortfall
• Unlocks better rates
• Removes retention concerns

2. Choose Flexible Lender

• Accepts Help to Buy (if using)
• Offers mortgage extensions
• Reasonable retention policies
• Experience with new builds

3. Plan for Delays

• Don't give notice on rental until keys in hand
• Budget for 3-6 month delay
• Keep emergency fund for overlap period

4. Use Specialist Broker

We specialise in new build mortgages and can:

• Access lenders with generous valuation policies
• Navigate Help to Buy complexity
• Manage retention issues
• Protect you from completion delays

NHBC Warranty and Your Mortgage

National House Building Council (NHBC) Warranty:

• 10-year warranty standard on most new builds
• Lenders require this for new build mortgages
• Covers structural defects
• Buildmark certification needed before mortgage release

Alternative Warranties:

• Premier Guarantee
• LABC Warranty
• CRL (Checkmate)

Important: Check lender accepts your warranty provider. Not all lenders accept all warranties.

Next Steps: Getting Your New Build Mortgage

Buying a new build requires specialist mortgage knowledge. We've helped thousands of buyers navigate the process.

Our Service:

• Lender matching - right lender for your new build
• Help to Buy expertise - maximising government scheme
• Valuation protection - strategies to avoid shortfalls
• Completion delay management - keeping your offer valid
• Retention negotiation - minimizing held-back funds

Get your free new build mortgage consultation - we'll ensure you avoid the common pitfalls.