Reasons why it is harder to get a mortgage for a new home loan

It can often be much more difficult to get a mortgage on a new-build home than many new homebuyers expect. Individual lenders take a varying approach to brand new homes, with some refusing applications whilst others may be happy to loan.  No two lender’s policies or deals will be the same. House builder deals and Help to Buy can even make the problem worse.

Lenders require larger deposits on new homes

This is because most lenders believe new home buyers are paying a premium prices for new homes and the home will lose value the moment you move in. It can be very difficult to re sell a new home (at the fair market price) whilst the house builder’s sales staff is still on the development. Buyers will always opt for brand new over nearly new!

New home warranty

Forget trying to get a mortgage from any lender on a new home without a recognised ten-year warranty. An Architect’s certificate is not a substitute!

Challenging timescale

Nearly all house builders require buyers to Exchange Contracts within 28 days of reserving a new home. The demands of this tight deadline (forced on buyers by house builders) is often difficult for lenders, so it pays to get a mortgage offer agreed 'in principle' before even going to developments.

A mortgage using Help to Buy

Using Help to Buy limits your choice of lenders. Large lenders such as Santander and Barclays do offer low deposit mortgages on new homes using the scheme, but many others avoid it.

Completion dates cannot be relied on

Even though most mortgage offers are valid for up to six months, this is often not enough for those houses yet to be started or homes under construction such as flats. Some lenders can extend offers to up to 9 months, but buyers should ask. New homes are rarely 100% finished on the date when house builders say they will be! Buyers' complaints concerning completion delays are common.

Cash-back and incentives

It is not uncommon for house builders to offer cash-back and other incentives to help buyers' increase deposits. But it is obvious to lenders that the prices will have been set higher to compensate for the cash-back and other incentives. This means that lenders then deduct the incentive amount from the home valuation and the percentage loan-to-value is offered on the lower figure. New homebuyers are then forced to find an even larger deposit to make up for the shortfall.

A larger deposit required when buying new

Lenders limit the maximum percentage of the purchase price they are prepared to lend for a new home. Some may lend up to 85% of the value on a new house, but just 75% on a new flat.

Is it new or just nearly new

Lenders' specific new-build lending criteria and deposit rules will depend on how the lender defines what is classified as a "new home." The definition of new varies from lender to lender, with some classing homes built in the last two or three years as new, while others define a new home as one that has not been occupied at all.  Even conversions of older properties can often be categorised as new by some lenders.

Restrictions on type of new homes

Some lenders may be less accommodating with loans on homes for reserved for local people or affordable housing buyers. Others may not lend on flats converted from industrial buildings, offices or in local authority blocks.

Limited mortgages per development

It makes sense for lenders not to have all their "eggs in one basket" As a result most lenders restrict loans to around a quarter of the homes on each development. So if you are buying one of the last plots, especially using Help to Buy you may find it ever harder to get a mortgage offer.

Mortgages in high-rise blocks

In the past many lenders refused to offer loans on flats in high-rise blocks. West Bromwich Building Society will still only lend on properties in blocks of less than five floors. It is not uncommon for lenders to require surveyors to give a projected resale value and then lend only when this is positive.

Return to Top

Getting A New Home Mortgage