New Build Mortgages - Not All Plain Sailing?

There is probably nothing quite like becoming the owner of something brand spanking new. When it comes to your home, being the first person or family to live in the newly-built property is likely to be especially happy. Although such a home is likely to tick all the right boxes as far as the new occupants are concerned, however, lenders have been known to express surprising misgivings about new build mortgages.

In order to understand these potential misgivings, it might help to look at some of the issues that put lenders off and, by recognising them, turn the situation to your own advantage. By finding the right mortgage, you might then realise your dream of owning a brand new, just-built home.

The disadvantages of new build

One of the things it is helpful to bear in mind when applying for a mortgage of any kind is the lenders concern that the real value of the property exceeds the amount of the mortgage to be advanced. This is more or less inevitable, given that the property if the lenders sole surety against being repaid.

In the event of the borrower defaulting on his or her repayments, the lender has the right to repossess the home and sell it on to a new buyer in order to recover the amount lent. Rather than the original purchase price, therefore, it is the lenders estimation of the re-sale value of the property that informs decisions on whether or not to advance new build mortgages.

The uncomfortable fact is that lenders therefore take into account some of the quite widespread criticisms of newly built homes, citing some of the following alleged drawbacks:

Quality - builders today do not always appear to maintain the same standards of workmanship as their predecessors. Older properties, therefore, may sometimes display a higher quality of workmanship;
Character - new build homes may be functional, but some people feel that they lack the character of older properties;
Design - the quest to optimise usable space in new build homes often makes some of them appear small and cramped, in comparison to older homes.

The advantages

So much for the critics - whether there is anything of substance in the so-called shortcomings of new homes, there are sometimes distinct advantages to buyers in search of new build mortgages. Not least of these advantages is the potential flexibility in arranging the mortgage itself:

Deposit - some builders, for example, are so keen to stimulate sales of their new homes that they are prepared to pay the deposit on your behalf. Naturally, this might prove a boon for those buyers who are struggling to raise a deposit, although it is important to bear in mind that not all mortgage lenders accept such deposits;
Shared ownership - shared ownership or shared equity schemes are also relatively common ways for housing developers to widen the appeal of new build homes. These allow buyers to purchase at a reduced price a share in the equity of the home whilst the builder retains the remaining portion;
Warranty - the majority of homes purchased with new build mortgages also come with a typical 10-year warranty against construction defects guaranteed by the National Housebuilding Council.