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.
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.
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New Build Flat Mortgage (Part 2)
James Bull continues the conversation on new build flat mortgages.
Who can get a new build flat? Is this just for First Time Buyers?
Anyone can buy a new build flat – First Time Buyers, home movers, anyone.What if the new build flat is high-rise? What are the unique considerations with a mortgage on a high-rise new build flat?
It is slightly different in that some lenders have criteria around the maximum number of floors in a building. But other lenders have no limits around that at all. As mortgage brokers, we obviously take all this into consideration when we’re doing our research.Can I get a Buy to Let mortgage on a new build flat?
Absolutely. Buy to Let mortgages are available as normal, just subject to the usual lender criteria. We will obviously check all that as part of our normal process.How does the height of a new build flat affect my mortgage options and rates?
This relates to the number of floors in the building, which some lenders do have criteria around.
Are there any additional costs associated with purchasing a new build flat that we need to know about?
Specifically talking about the mortgage, not typically. In fact, many lenders now offer green products for energy efficient properties. So if anything, the mortgage might even be slightly cheaper.What factors could affect the resale value of a new build flat?
I’d check with the builders how long the build is going to take for the whole site. It can be more difficult to resell while they are still building, because obviously a lot of people may just prefer to buy it brand new from the builder. Once the site’s finished, you can typically sell as normal.Can I get a new build flat if I have bad credit?
Bad credit covers quite a wide range of scenarios, but in general we’ve got a lot of options for new build flats where there are credit issues.How does remortgaging a new build flat work?
By the time it comes to remortgaging, it’s not going to be a brand new property any more. Typically you’ll just be able to remortgage as normal.How does the age and condition of the new build flat affect the mortgage process?
If it’s a new build flat that’s never been lived in, it just needs to meet the lender’s criteria around the deposit, the warranty, or any other specific requirements.Most new build warranties are for 10 years, so if you’re looking at mortgages within that period the lender might want to check the warranty – it’s rarely a problem, though. Once you’ve got the flat, it’s not a new build any more and you just proceed as normal.
What should buyers be aware of when purchasing a leasehold flat?
It’s just a case of checking how long is left on the lease. On a new build, they do give quite long leases anyway so, again, that’s rarely a problem.You also need to know about any fees – as on a leasehold flat there normally would be ground rent and service charges. That gets taken into consideration by the lender, so we need to know what those figures all are.
What role does the flat’s management company play in the mortgage process?
The management company normally collects the ground rent and the service charge, and they use that money to maintain any common areas. Their exact role can vary between developments, but they don’t typically have huge involvement in the mortgage process itself.There might be some forms they need to provide for the legal work, but apart from that, there’s not too much on the mortgage side.
Are there any specific documents or reports that buyers of new build flats should request before applying for a mortgage?
This can vary. After we’ve spoken to a particular client about their circumstances and the property they’re interested in, we provide them with a personalised list of the documents they will need to apply. There’s not just a one-size-fits-all list for everybody. It really is down to the individual’s personal circumstances.YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.
