New build mortgages: rates, deposits and pitfalls

A new build mortgage is a normal mortgage with extra timing risk. Mortgage offers commonly last around six months, and a new build often completes later than that, which means your offer can expire before your home is finished. Lenders also cap the developer incentives they will accept, usually around five per cent of the purchase price, require a recognised warranty, and sometimes apply lower maximum loan to values to new build flats.

With a second hand purchase you exchange and complete a few weeks apart. With a new build you may reserve a plot that is a hole in the ground, exchange contracts within weeks, and complete anywhere from three months to well over a year later. The lender is being asked to commit to a property that does not exist yet, at a price set by the developer rather than by an open market negotiation.

That gap creates every one of the issues below. None of them are reasons to avoid new builds. They are reasons to plan the mortgage around the build programme rather than the other way round.

Most mortgage offers are valid for around six months from issue, though this varies by lender and some are shorter. A number of lenders offer extended validity specifically for new builds, and some will extend an existing offer on request.

Here is the timing trap. You reserve a plot in March with an expected completion of November. You apply immediately and your offer is issued in April, valid until October. The build slips by three weeks. Your offer expires before you can complete.

Extension is not automatic. Lenders typically re-check your credit file, re-verify income, and reassess affordability against current criteria. If your circumstances have changed, if you have taken on a car loan, changed job, or if rates and stress tests have moved, the extension can be refused or the amount reduced. Some lenders will require a full new application, with a new valuation.

Two practical steps help. Ask the lender's new build policy on validity and extensions before you apply, not after. And time the application to the developer's realistic completion window rather than the optimistic one they quoted at reservation.

Separately, look at the long-stop date in your contract. This is the backstop date by which the developer must complete, after which you may have the right to withdraw and recover your deposit. It is usually much later than the target date, so it protects you against catastrophic delay rather than ordinary slippage.

Developers typically ask for a reservation fee, often somewhere between 500 and 2,000, to take the plot off the market. That fee is usually only partly refundable and sometimes not refundable at all if you pull out.

The bigger pressure is the exchange deadline. Many developers require exchange of contracts within 21 or 28 days of reservation. That is a tight window in which to get a mortgage offer, complete legal enquiries and review the contract. Miss it and you may lose the plot and the fee.

Have your paperwork ready and a broker briefed before you reserve, not after. Ask for the exchange deadline in writing and check whether extensions are granted where the delay is not your fault.

Developers rarely discount the headline price, because that would reset the comparable prices on the rest of the site. Instead they offer incentives, such as a deposit contribution, paying your legal fees, covering the purchase tax, throwing in flooring, turf, blinds or white goods, or offering part exchange on your current home.

Lenders take a firm view on this because incentives inflate the apparent price relative to true value. Most lenders cap total acceptable incentives at around five per cent of the purchase price. Cash incentives, such as a deposit contribution, are usually counted more strictly than fixtures like carpets.

Work an example. The plot is 350,000. The developer offers 10,000 towards your deposit, 5,000 of flooring and blinds, and to pay 5,000 of purchase tax. That is 20,000, which is about 5.7 per cent of the price. A lender with a five per cent cap may reduce its lending accordingly, treating the effective price as lower, or ask you to drop part of the package.

Everything must be disclosed. Incentives are recorded on a disclosure form, commonly the UK Finance Disclosure of Incentives Form, which the developer completes and the lender relies on. Do not let anyone suggest keeping an incentive off the form. That is misrepresentation to the lender and it will unravel the deal at best.

Lenders will normally only lend on a new build with a recognised structural warranty, typically running ten years, from a provider such as NHBC, Premier Guarantee, LABC Warranty, Checkmate, or an architect's professional consultant's certificate where the lender accepts one.

Check which provider your development uses and confirm your lender accepts it before you get far. Acceptance lists differ, and a less common warranty provider can rule out lenders you were counting on. Ask for the warranty certificate or cover note as part of your legal pack.

New builds frequently carry a price premium over comparable second hand homes on the same street, in the same way a new car does. Valuers know this, and they value against comparable evidence, which on a part-built site may mean earlier sales on the same development or resales of similar new homes nearby.

Downvaluations are more common on new builds than on second hand stock, particularly on the later phases of a site where prices have been pushed up across the programme. If the valuation comes in below the agreed price, the lender lends against the lower figure and you have to find the difference, renegotiate with the developer, or appeal with comparables.

Developers do sometimes move on price when a valuation is clearly out of line, especially late in a phase when they want the plot sold. It is worth asking.

Lenders are generally more cautious about new build flats than new build houses. Some apply a lower maximum loan to value to flats, so where a house might be available at 90 or 95 per cent, a flat on the same site might be capped lower. Policies vary considerably.

Additional flat specific issues include the length of the lease, the ground rent terms and any escalation clause, the service charge level and how it is set, the number of storeys and whether the block has a lift, cladding and fire safety documentation on taller buildings, and the proportion of the block sold to investors rather than owner occupiers.

Get the lease terms and the service charge budget early. A ground rent that doubles periodically, or a very high service charge, can make a flat unmortgageable with some lenders regardless of your own finances.

Once the property is finished you will be invited to a demonstration or handover visit. Use it properly. Many buyers pay for an independent snagging inspection, commonly costing a few hundred pounds, which produces a room by room list of defects for the developer to fix under the warranty.

Snags are usually cosmetic or minor, such as poor paint finishes, doors that do not close cleanly, or missing seals. Report them in writing, keep the list and the developer's responses, and be aware that most warranties give the developer a defined period, often two years, to put right defects in workmanship and materials, with the structural cover running longer.

Completion on a new build normally happens on notice, sometimes as little as ten to fourteen days after the developer serves it. Make sure your funds, your solicitor and your lender can move that fast.

If your build has a moving completion date, the mortgage needs to be chosen for its new build policy as much as its rate. You can use the MortgageMatch directory to find an FCA-authorised broker who can check offer validity and extension rules before you reserve a plot.