Mortgages on new-build homes

A new-build mortgage is a residential mortgage on a home that has been newly constructed, significantly modernised or refurbished in the past two years, and it is not quite the same product as a mortgage on an older house¹. The main differences are the loan-to-value a lender will allow, how it treats anything the developer throws in, and the fact that the property may not exist yet when you apply.

Mortgages are generally available up to 95% loan-to-value, and 95% mortgages are theoretically available to both first-time buyers and home movers². In practice, some lenders restrict new-build lending to 85% of the value of a house or 75% on a flat, against 90% or 95% on an older property⁴. Individual lenders publish their own limits, and those limits often tighten as the loan gets bigger.

The other thing that catches buyers out is timing. Mortgage offers are usually valid for six months, and new-build completions can slip past that⁵. Some lenders build in more room: one building society says the validity of a new-build mortgage offer can typically be extended from 9 to 12 months¹.

How a new-build mortgage differs from one on an older home

The property is the difference. Most new-build homes are sold at a fixed price, often before the home has been built, which is known as buying off-plan⁶. That means the lender is underwriting a home it cannot yet value, on a completion date the developer controls, and the buyer is committing to a price before seeing the finished article.

Lenders respond to that uncertainty in their criteria rather than in a separate product. A new-build mortgage is defined by the property, not by a distinct set of terms: it covers a home newly constructed, significantly modernised or refurbished in the past two years¹. The rate, term and repayment structure come from the ordinary mortgage market, so a new-build buyer still chooses between a repayment mortgage and an interest-only mortgage, and between a fixed rate and a tracker rate.

Where new-build lending does diverge is in the small print of eligibility. Lenders set their own policies about whether they will accept a mortgage application, and those policies can exclude particular property types, particular developers or particular incentives¹⁰. A lender might cap the loan at a lower loan-to-value for a flat than a house, or restrict the maximum loan size at the highest loan-to-value tiers. One lender, for example, lends up to 75% on a new-build house or flat with a loan size up to £5m, and up to 90% with a loan size up to £1m¹¹. Another lends up to 75% with a maximum loan of £5,000,000, and 90% to 95% on houses only, with a maximum loan of £750,000¹².

There is one genuine advantage. Some banks offer cheaper rates for people buying new-build properties that have high energy-efficiency ratings, known as green mortgages¹³. A well-insulated new home can therefore cost less to borrow against than an older one, even where the loan-to-value is tighter.

Deposit and loan-to-value limits on new-build homes

The headline rule is that mortgages are generally available at up to 95% loan-to-value, and a 95% mortgage is a loan for 95% of a property's price, with a 5% deposit covering the rest². No-deposit, 1% and 2% deposit mortgages are available to first-time buyers who meet the affordability checks¹⁵.

New-build homes sit inside that market but often at the cautious end of it. The 85% house and 75% flat caps reported by Which? are not universal, but they reflect a common lender view that a newly built home carries more resale risk than an established one⁴. Where a lender does go higher, it usually attaches conditions: houses only, a lower maximum loan, or a restriction on the property type.

The practical effect is that a buyer with a 5% deposit may find the flat they want is not lendable at that level, while the same deposit on a house is. Working out the deposit against the lender's new-build tier, rather than against the general 95% maximum, is what determines whether a particular home is affordable to buy with the money available. Our guide to loan to value explains how the ratio is calculated.

Developer incentives and how lenders treat them

Developers sell with incentives: a deposit contribution, stamp duty paid, a fitted kitchen, flooring, or a cashback on completion. These are not neutral to a mortgage application. Lenders set their own policies about whether they will accept an application, and how an incentive is treated is part of that policy¹⁰.

The reason incentives matter is that the lender lends against the property's value, not against the price after the incentive. If a developer pays 5% of the price towards the deposit, the buyer's own cash contribution falls, but the loan-to-value is still calculated on the full purchase price. A lender may treat that as a higher-risk application, or may accept it but at a lower maximum loan-to-value than its standard new-build tier.

Some incentives are more straightforward than others. A green mortgage rate, for example, is a pricing decision by the lender based on the home's energy efficiency, not a payment from the developer, and it does not change the loan-to-value calculation¹³. A cash payment from the developer towards the buyer's costs is a different matter, and the lender will want to know about it.

Mortgage offer expiry: when the build runs late

Mortgage offers are usually valid for six months, and remortgage offers are typically only valid for three, though this varies between lenders⁵. A buyer should generally expect to receive a mortgage offer within four weeks of applying¹⁶.

Off-plan purchases routinely run past six months. New-build completions can slip, and a mortgage offer that expires before completion has to be renewed, which means a fresh affordability check and a fresh rate, at whatever the market is offering at that point⁶. Some lenders address this directly: one building society says the validity of a mortgage offer for new builds can typically be extended from 9 to 12 months¹.

The risk is not only the rate. If the offer lapses and the buyer has to reapply, the lender will reassess income, outgoings and credit file, and a change in circumstances between the original application and the renewal can mean the loan is no longer available on the same terms. Buyers committing to an off-plan purchase should ask the lender, before exchange, what happens if the build is delayed beyond the offer period, and whether the offer can be extended.

Schemes that can help first-time buyers of new builds

Several schemes are aimed at first-time buyers, and some are specific to new-build homes.

The First Homes scheme sells new homes at a discount to first-time buyers. To qualify, a buyer must be a first-time buyer and able to get a mortgage for at least half the price of the property¹⁷. Homes are advertised by developers or estate agents through the scheme, so the way to find them is to look for new homes in your area advertised that way¹⁸.

The Lifetime ISA is the savings route most often used alongside a new-build purchase. The full balance including the government bonus can be withdrawn without charge to buy a first home worth up to £450,000, at any time from 12 months after opening the account¹⁹. The property must cost £450,000 or less, and the buyer must be buying with a mortgage⁷. The £450,000 cap applies in all areas of the UK⁸. If two people are buying together and both have a Lifetime ISA, they can both use their savings and government bonus, provided both are first-time buyers and meet the conditions⁷. Where someone holds both a Help to Buy ISA and a Lifetime ISA, only the bonus from one of them can be used to buy a first home⁷. The First Homes Fund also accepts a Help to Buy ISA or Lifetime ISA towards the deposit²¹.

There is also a Wales-specific route. Help to Buy: equity loan in England is a shared equity scheme for first-time buyers and existing homeowners who want to move, and it applies to new-build homes with a maximum value of £600,000²⁴. In Wales, buyers of new-build homes under £300,000 can apply for a loan to help with the purchase²⁴. Our guide to mortgages in Wales covers the Welsh schemes in more detail.

The valuation risk when a new home loses its premium

A new-build home carries a premium over an equivalent older property, and that premium can disappear. If you buy a property, it may lose value over time²⁵. The value of a property can increase or decrease in the future, and that applies to new builds as much as to anything else²⁶.

The valuation is where this becomes concrete. A lender's surveyor values the property, and the lender lends against that figure, not against the price agreed with the developer. On a £250,000 purchase with a £25,000 deposit, a 90% mortgage is £225,000. If the surveyor decides the property is actually worth £200,000, 90% of that is £180,000, and with the £25,000 deposit the buyer has £205,000 in total, leaving a £45,000 shortfall²⁷.

That shortfall has to be met from somewhere: more cash, a renegotiated price, or a different mortgage. There is a process for challenging a down valuation, and our guide to how to challenge a mortgage down valuation sets out how it works. The surveyor may also provide the lender with a minimum reinstatement value, which is the amount needed to rebuild the property from the ground up, and which is useful when arranging buildings insurance²⁷.

A related risk is underfunding. Mortgage underfunding occurs when mortgage payments are not set up on the correct basis, meaning the customer is not paying enough, usually without realising, and then faces paying back more than expected or over a longer period²⁸. On a new-build with a long build programme and a changing offer, it is worth checking the first payment and the term carefully.

Snagging, warranties and where to get help

New-build homes come with a warranty, and it is a condition of some schemes that the builder provides one. Under Help to Buy in Wales, home builders must give the buyer a new home warranty before completion²⁹.

Building warranties cover major problems with newly built or converted homes⁹. Before the build is finished, the cover applies if the builder is insolvent or commits fraud and does not complete the build, in which case the insurer should refund money, part-refund it, or arrange for the building to be finished⁹. For claims in years 3 to 10, the claim is normally valid only if all of the following are true: the home has a defect, the builder has breached technical requirements, and the defect has caused damage⁹.

Snagging, the list of minor defects a buyer finds after moving in, sits outside the warranty in most cases and is dealt with directly with the developer. It is important to have the right insurance and warranty cover to protect against some of the risk if things go wrong³⁰. Renovation and new-build insurance products cover renovations, extensions, conversions, new builds, self-builds, restorations and contract works³¹.

If a dispute with a developer, a warranty provider or a lender cannot be resolved, the Financial Ombudsman Service can look at complaints about building warranties and about mortgage underfunding⁹. The ombudsman's mortgage jurisdiction covers mortgage contracts including first and second charge mortgages and bridging loans, equity release products, home purchase plans and sale and rent back agreements³². Our guide to complaining to the Financial Ombudsman about your mortgage explains the process.

Free, impartial help is available. Citizens Advice covers buying and selling a home, including problems with delayed completion²⁴. For anyone struggling with payments after completion, Support for Mortgage Interest is available to homeowners on certain benefits and provides help towards mortgage interest payments³³. In Scotland, the Home Owners Support Fund can be applied for by homeowners at the end of their mortgage term who have money left they cannot pay³⁴.