Financing and insuring a new build
Buying a new build has its benefits but you do need to be aware that completing the purchase can be more complicated than for a ‘second hand’ property.
The main difference is the timescale that developers work to, which often requires that, once you have decided to buy and put down your deposit, you only have 28 days to then exchange contracts. Although it may only take 4 weeks for a straightforward application, it's not unusual to have to wait longer. As such, and particularly if you are buying at a time when your lender is very busy, this time limit can prove a challenge for some.
While most lenders should be familiar with the new build scenario, you should ensure you prepare your application as early as possible, ideally using a mortgage broker who is familiar with both new builds and dealing with your particular lender.
The second issue around the developer’s timescale, and potentially more of a problem, is how long it takes for them to finish the build. Most lenders state that their mortgage offer is only valid for six months, meaning you have to complete on your purchase within six months from the date of issue. If it looks as though your new home isn’t going to be ready in time, the lender may agree to extend the offer, but they may require you to start the application process again, which could further delay your move-in date.
Given that delays with developers are not uncommon, some lenders have introduced specific new build mortgages that are valid for up to nine months. So, check with your mortgage broker about the availability of these.
Finally, be aware that you may have to find a larger deposit for a new build, as the loan to value is often lower than for a ‘second hand’ home. That’s because you tend to pay a premium for a brand-new property, so lenders need to protect themselves against a potential drop in capital value in the early years. The percentage they’re prepared to lend may also be different, depending on whether you’re buying a house or a flat.
In terms of insurance for your new home, while you will benefit from a builder’s warranty - usually valid for up to ten years - that only covers you for problems that are the builder’s fault, so you do need to take out your own Buildings Insurance to cover everything else. Your mortgage lender will require you to have this in place at the point you exchange contracts.
One potential issue to be aware of, particularly if you’re buying on a large new development, is that brand new postcodes might not be on the insurer’s system yet; this may also impact your car insurance. So, as soon as you know the postcode, check with the Royal Mail whether it’s registered, then you need to find an insurer that has updated their system recently. Because that can all take quite some time and effort, it’s often easier to use an insurance broker, who will be able to guide you to the most appropriate insurers - ones that perform regular updates to capture new postcodes.
If you would like further advice on financing a new build, our partners, Embrace Financial Services, will be happy to give you a free initial consultation. You can arrange an appointment via our website.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Embrace Financial Services usually charges a fee for mortgage advice. The amount of the fee will depend upon your circumstances and will be discussed and agreed with you at the earliest opportunity.