New Build Flat
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New Build Flat
Sam Bull talks us through how mortgages on new build flats work.
What do lenders class as a new build flat?
Mortgage lenders class a new build flat as one that is being occupied for the very first time since it’s been built. Alternatively, it could be the very first time since it’s gone through a major renovation.
What types of mortgages are available on new build flats? How do I know whether my flat qualifies as a new build?
You can get both residential and Buy to Let mortgages on new build flats. Your flat will qualify as a new build if it has been built or refurbished in the last two years and has never been occupied.
How does a new build flat affect how much I can borrow and the deposit required?
If you are buying the new build flat to live in, you would need a residential mortgage. Therefore mortgage lenders’ standard affordability calculations will apply. Most mortgage lenders will lend between four and five times your annual income, depending on what your expenditure is.
With new build flats, you will most likely need to pay some sort of ground rent and service charge and that will need to be factored into any affordability calculations.
In terms of the deposit required, when you buy a new build flat to live in, the minimum deposit would be 5%. However, some mortgage lenders will require a much higher deposit. It will just depend on the client’s requirements and the mortgage lender’s criteria.
If you are buying a new build flat as an investment, Buy to Let mortgage lenders base your borrowing on a standard rental calculator using the property’s anticipated rental income.
Lenders generally require the rent to cover the interest only mortgage payment by 125% to 140%. They will base that on an interest rate of around 5%. Mortgage lenders usually require a minimum deposit of 25% for a Buy to Let mortgage on a new build flat.
Do new build flats increase in value?
It can cost more upfront to buy a new build flat, and therefore over the short term the flat may depreciate slightly. However, new build flats are generally considered a good investment long term, due to the good rental yields that they can achieve. Generally speaking, over the long term they will appreciate in value.
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Is it worth buying a new flat? What are the advantages of owning a new build flat?
New build flats can be great properties to buy, both to live in and as an investment. The main benefits are that you are going to be buying a property that is extremely energy efficient. New build flats need to have an energy performance certificate of at least an A or B.
New build flats typically come with a warranty of at least 10 years, so that gives you the peace of mind that any major works needed will be covered. The developer may also offer incentives for you to buy the property – these can total up to 5% of the purchase price and the mortgage lender will be fine with that. Incentives might include covering your legal costs or contributing towards the deposit.
Also, you can complete quite quickly with these types of properties because there’s no chain. So there are quite a lot of advantages to buying new build flats.
How can a mortgage broker help somebody looking to buy a new build flat?
It is important to speak with your mortgage broker when looking to purchase a new build flat because lenders have such wide ranging criteria. Some lenders will only require a 5% deposit whereas others lenders may seek 15%.
A mortgage broker will make all the enquiries on your behalf and give you a recommendation that will be most suitable to your requirements and deposit level.
Your property may be repossessed if you do not keep up with your mortgage repayments.
The Financial Conduct Authority does not regulate some Buy to Let Mortgages.