Buying a new build property is a great opportunity to get a home built to modern standards and with modern lifestyles in mind. But the financing process can be complicated and tricky to navigate. There are all the associated costs to navigate, before getting onto exploring all the government-backed schemes and private financing options. In this blog, we’ll dig into all the costs involved, the available funding options, and offer some practical tips to help you take confident steps forward.
Understanding the Costs of New Build Properties
When buying a new build property, it’s crucial to understand the array of costs that go beyond the basic purchase price.
One of the primary costs is the deposit, which is typically required upfront. For new builds in the UK, lenders may ask for a higher deposit compared to older properties—often around 10–15% of the property’s value. This is because of concerns about potential value fluctuations in the early years of a new build.
Legal fees must also be taken into account. Conveyancing solicitors handle the legal side of purchasing your property, including checks on the title deeds and drafting contracts. These fees can range from £1,000 to £1,500, depending on the complexity of the transaction.
Stamp Duty Land Tax (SDLT) is a significant cost for most property buyers in England and Northern Ireland. Some first-time buyers may benefit from exemptions or discounts on properties under certain thresholds. But these are the exception and not the rule, and it would be wise to budget for this tax. Stamp Duty can be significant – if your new build is priced at £300,000, you might expect to pay around £5,000 in stamp duty, depending on your buyer status.
New build properties may also come with additional expenses, such as reservation fees. These fees, typically ranging from £500 to £2,000, secure your chosen plot and are usually deducted from the purchase price once the sale is completed. However, they’re often non-refundable if you decide not to proceed with the purchase.
Finally, don’t forget ongoing costs. New build homes are often sold as leasehold, particularly flats, which means you’ll need to budget for ground rent and service charges. These costs can vary widely depending on the property, so it’s essential to confirm and budget for them before committing to buying.
Exploring Financing Options for New Builds
The most common method of financing is obtaining a mortgage, but new builds have a set of unique considerations when it comes to mortgages.
Where new builds are concerned, some lenders may limit the loan-to-value (LTV) ratio so that a larger deposit will be required. Others may offer shorter validity periods for mortgage offers. This is because new builds often take longer to complete, and lenders need assurance that the buyer’s financial circumstances won’t change significantly during this time.
There are various government schemes available too. The Help to Buy equity loan scheme (available for eligible buyers in England until 2023) has helped many buyers secure new builds with as little as a 5% deposit. The scheme offered an equity loan of up to 20% (or 40% in London) of the property’s value, which was interest-free for the first five years. Although Help to Buy is no longer accepting new applications, other schemes such as shared ownership and First Homes may still offer valuable assistance.
Private financing options also have a part to play. Sources can include personal savings, family loans, or even specialist lenders who cater specifically to new-build buyers. Consulting with a mortgage broker experienced in new builds can help you identify lenders with favourable terms for your circumstances.
Tips for Securing Financing for Your New Build
So, what’s the best way to go about securing financing for a new build? As we’ve seen, there are a number of ways. But here are a few top tips that might make the whole journey that bit smoother.
Credit Score: Lenders rely heavily on credit scores to assess your reliability as a borrower. Pay off outstanding debts, avoid late payments, and ensure your credit file is accurate and up to date to boost your score.
Save for a Larger Deposit: While a 5% deposit might be sufficient in some cases, aiming for at least 10–15% will improve your mortgage options and could secure better interest rates.
Work with a Mortgage Broker: A broker can provide access to lenders and products you may not find on your own. They can also offer guidance specific to new build financing, including navigating stricter lender requirements.
Budget for Additional Costs: As well as your deposit, you should make provision for legal fees, stamp duty, and any other possible charges. Having these funds ready will make the process much smoother and stress-free.
Understand Timing Restrictions: New build mortgages often come with shorter offer validity periods. Stay in close contact with your lender and developer to ensure deadlines are met.
There are various factors to be aware of when considering a new build purchase, but none of them are so difficult or complex that they should stop you from considering a new build. Indeed, the benefits of buying a new build, such as modern amenities and facilities, can outweigh any extra possible complexities with financing, so it’s always worth keeping an open mind and an eye on the variety of financing options.