Mortgages for new build homes

Find out what you need to know about new build homes, including the implications when it comes to securing a mortgage.

What is a new build property?

A new build property is one that’s been newly built, or substantially renovated, within the past two years and not sold during that period. If you’re buying a property where work hasn’t started on the land, or the property is in the process of being built, it’s known as ‘off-plan’. Trying to secure a mortgage on an off-plan home can be more complicated than one that’s been built.

What are the benefits of new build homes?

There are numerous benefits to buying a new-build, including:

The property will typically be in a better condition than an older one, meaning lower repair and maintenance costs.
New builds tend to be more energy efficient.
You may be able to choose your own fixtures and fittings, such as flooring, tiles, lighting and appliances.
New builds can be designed to suit modern family living in their layout and flow of rooms.
You could avoid some of the costly delays of the regular house-buying process, like property chains.

Expert view from David Hollingworth at London & Country Mortgages

“There have been some issues with new build properties in recent years – for example, problems around excessive ground rent charges. So, it’s clearly important to understand what you’re buying. However, new build properties can be appealing. It’s often easier to customise the property to your needs, and new builds can be more energy efficient than older properties.

The Help to Buy scheme has also helped make new homes more affordable for buyers, which in some cases will have helped them buy a bigger property than they would have been able to otherwise.”

What are the drawbacks of new build homes?

Buying a new-build home has disadvantages too, including:

New build homes are typically more expensive than older properties.
If the new build home you want to buy is off-plan, you might experience delays if the construction work gets held up.
A developer is likely to ask for a reservation fee to secure your plot for an off-plan home. You could lose this fee if you pull out from the purchase.

Mortgage lender criteria is stricter for new builds

You may find that you’re charged a higher interest rate for a mortgage on a new build property. This is because lenders see these mortgages as riskier, due to the possibility that the value of the property may fall in its early years. This doesn’t always happen, but if it does – simply because the property is no longer ‘new’ – then the lender has less security for the loan it’s provided.

When you buy off-plan, you need to remember that your mortgage offer will probably only last for six months. If the development takes longer, you may need to re-apply for the loan (or see if you can negotiate a longer validity period in the first place). If your financial circumstances have changed during this period, you may find it harder to secure a deal.

If the market value of the property increases or falls during the building phase, you’ll still have to pay the agreed original purchase price when it’s completed. This can have an impact on your mortgage, so you need to discuss the matter with your lender as a priority.

An increase in value is good news, giving you more ‘equity’ in the property (meaning you own more of it and reducing the portion accounted for by your mortgage). But a fall in value can be catastrophic. Your lender might withdraw its offer or only agree to loan you a lower amount, leaving you with a financial shortfall and a legally binding commitment to buy or compensate the developer. For this reason, it’s important to think long and hard, and to take advice, before buying off-plan.

Your home may be repossessed if you don’t keep up with repayments on your mortgage.

Top tip

If you’re buying ‘off-plan’, get the builder to agree to a ‘long stop’ completion date. This means they’ll be liable to pay you compensation if they don’t finish the work by the agreed date.

Check for the National House Building Council (NHBC)’s Buildmark

Newly built properties come with a compulsory NHBC Buildmark, which is a 10-year warranty covering quality of construction. Mortgage lenders need to see evidence of the Buildmark. It’s easy to check if a property has been registered for the NHBC Buildmark through the NHBC website.

Where can I get help to buy a new build property?

Here are some different ways you can get help buying a new home:

First Homes – a scheme designed to help first-time buyers and key workers in England onto the property ladder. New build homes are offered at a discount of 30% to 50%. Eligible buyers must have a household income not exceeding £80,000 (£90,000 in London), and the property value must be £250,000 or less (£420,00 or less in London).
Shared Ownership – if you can’t quite afford to buy 100% of a home, this scheme allows you to buy a 10% to 75% share in a new-build property and pay rent to the housing provider on the rest.
Lifetime ISA – a savings account to help under-40s save up a deposit on a first home. The Government will add a 25% bonus to your savings each year, up to a maximum of £1,000 per year.
Mortgage Guarantee Scheme – a UK-wide Government-backed guarantee that offers 95% mortgages from participating lenders. This means you could get a mortgage for a new build with just a 5% deposit. The current scheme is due to end on 30 June 2025.
Deposit Unlock scheme – developed by the Home Builders Federation to help buyers get mortgages for new builds with just a 5% deposit. However, you can only buy a new build home from participating builders, with a mortgage from participating lenders, so your options are limited.

The once popular Government-backed Help to Buy: Equity Loan scheme allowed first-time buyers in England to borrow up to 20% of a new-build home’s full purchase price (40% if you’re buying in London). However, the scheme ended on 31 March 2023.

In Wales, a similar scheme is available for new builds, and this was extended to run until March 2025. In Scotland, there's the New Supply Shared Equity scheme (NSSE), which helps you buy a new-build home from a council or housing association.

Frequently asked questions

How long does it take to get a mortgage for a new build?

If everything runs smoothly, it should take around four weeks to get mortgage approval. However, it can take longer, especially if there are issues with your application – for example, missing paperwork.

To avoid unnecessary delays to your mortgage application, make sure you get all your supporting paperwork ready well in advance.

What is a mortgage agreement in principle?

An agreement in principle (AIP) is a statement from your mortgage lender indicating how much they’re prepared to lend you, based on your financial details and income.

An AIP isn’t a guaranteed mortgage offer and can be withdrawn, but it can show that you’re serious about buying a home. Some estate agents will insist you have an AIP before showing you any properties. And if you’re buying off-plan, most developers will want you to have an AIP in place before you exchange.

An AIP can also help speed up the full mortgage application process, as most of your paperwork will have already been submitted to the lender.

Will I need home insurance to get a new build mortgage?

Although your new build will come with a warranty, your mortgage provider may still insist you have buildings insurance as a condition of their mortgage offer. You don’t have to get your insurance from your provider though.

A new-build warranty only covers specific problems relating to the work carried out by the developer for a set period. It won’t cover your home for fire, flood, or subsidence.