New build mortgage deals are still restricted
There is a market for new build properties as prices fall, but can borrowers easily secure a mortgage?
New build properties offer many advantages over older homes. They come with solid new windows that are not drafty, the boiler and central heating should work a treat and they have clean neutral décor and sometimes integrated kitchen appliances.
In short they are nice and new and neat and tidy -- perfect for first-time buyers who don’t want to renovate their first home, or for buy-to-let landlords who want to rent out the place as soon as possible without having the delay of decorating. In addition the building work is also covered for up to 10 years under the National Housebuilding Council warranty (most new properties are covered under this scheme, and certainly those built by major developers).
Clearly, new build properties suit a large number of homebuyers and buy-to-let investors, but mortgage lenders have concerns about lending on the properties and are tightening up their lending criteria.
Right to be cautious
Over two years ago some specialist lenders started to restrict what they would lend to borrowers who were buying a new build property, and some pulled out of the market altogether. Nationwide specialist subsidiary The Mortgage Works pulled out of lending on new build flats across its buy-to-let range (though it will lend on new build houses). It said at the time that it felt it could not rely on valuations of new build flats, particularly in city centres where thousands of apartment blocks have been built and sold to buy-to-let investors.
Clearly The Mortgage Works made the right move at the right time, since new build flats have fallen in value faster than any other part of the property market, according to smartnewhomes.com, which says they have dropped by 17% in value in the last year alone. This has left many borrowers (especially landlords) finding themselves in negative equity.
Just two weeks ago HBOS announced a raft of changes to its mortgage proposition, including the tightening of its mortgage criteria on new build property.
All HBOS brands, which include Halifax, Bank of Scotland, Birmingham Midshires and Intelligent Finance, have reduced their maximum loan-to-value (LTV) criteria for new builds to 80% for residential mortgages (down from 90%) and to 65% for buy-to-let mortgages (down from 75%).
This means that any borrower buying a new build property will need at least 10% upfront, and buy- to-let investors will need at least 35% -- a huge deposit.
The lender said it is making the changes to bring its criteria in line with the market. Specifically this means being brought into line with conservative parent company, Lloyds Banking Group, which covers Lloyds TSB, Cheltenham & Gloucester and now the HBOS brands. The Lloyd’s Banking Group will offer up to 90% LTV on residential properties that are not new build, and up to 75% on buy-to-let.
So do the other major UK lenders have a different policy in terms of lending on new build, or do they treat it the same as other mortgage borrowing?
Northern Rock will offer mortgages up to 70% LTV on residential new build flats. For new build houses it depends on the size of the loan. If you borrow £500,000 or less it will lend up to 85% LTV on a new build house. If you borrow over £500,000 the maximum LTV drops to 80%.
For new build buy-to-let mortgages Northern Rock will offer up to 70% on both houses and flats.
The lender doesn’t offer any mortgages (new build or not) at LTV ratios higher than 85% on residential and 70% on buy-to-let.
On residential mortgages it offers up to 75% LTV on flats and houses. If the property isn’t new build the lender will offer up to 90% LTV.
Abbey will offer mortgages up to 70% LTV for new build flats. For new build houses it requires a 20% deposit, lending up to a maximum of 80% LTV. On other non-new build properties it will lend up to 95% LTV.
Nationwide’s maximum LTV for new-build flats is 75%, and for new-build houses 90%. However the lender pointed out that it assesses all properties as though they have already been occupied and are being resold. In other words it ignores all discounts, incentives and cashbacks and looks at the "resale value”, based on comparable properties that have been sold.
This may mean that some new-build properties are valued as being below the purchase price. Where this happens applicants can have a copy of the valuation report, and then decide whether they want to either apply for a lower mortgage amount or renegotiate their purchase price.
Nationwide’s standard LTV ratios (for properties that are not new build) are 95% for existing customers and 85% for new customers.
The Mortgage Works
Nationwide subsidiary The Mortgage Works does not offer buy-to-let loans on new-build flats, but will lend on new-build houses. Like Nationwide, these are valued on a second-hand value basis, purely considered on what it would sell again for.
So, if you want a mortgage on a new build home, you can certainly find one. Most lenders offer all of their mainstream products to those buying new build properties. But the lower LTV restrictions will necessitate a bigger deposit, particularly if you are buying a flat.
Also remember that there is a reason why mortgage lenders require more upfront. If they see new build as more risky than other property (which they clearly do), perhaps you should apply the same caution when househunting.
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