New Build property purchases have seen a recent resurgence, following sustained market depression because of the credit crisis. Government initiatives like the Newbuy scheme for first time buyers, and the more recent Help to Buy scheme, have been available exclusively for New Build properties; resulting in a steady upward trend in new property sales.
However, any contractor looking to buy a brand new home does need to tread carefully when arranging the mortgage. Mortgage lenders usually request larger deposits when lending on new builds, particularly apartments. For example, Contractor-friendly lender Halifax requires a 20% deposit for any new property, and their main rival Clydesdale ask for 30% for new build apartments and 15% for new build houses.
The increased deposit burden can sometimes be offset via cash incentives that builders may offer to potential purchasers in order to secure the sale. Paying the stamp duty or making a contribution towards the deposit are commonplace practices in order to sell plots that may otherwise be harder to shift, mainly because of the increased deposit requirements.
Again, contractors need to be very wary of the level of the ‘cash incentive’ on offer. Lenders will usually only allow a maximum of 5% of the sale price as an incentive to buy. If any more than 5% is on offer, the lender will usually down-value the property by the value of the excess incentive. This is done in order to enable the lender to avoid lending on properties that are ‘over-valued’, as a new build that has been lived in is no longer considered ‘new’ if it has to be resold as a result of repossession. Therefore, should a new build property get re-possessed, a lender may be unable to recoup all of the mortgage debt.
Some new homes companies will apply strong-arm tactics regarding who arranges the mortgage and which solicitor is used by a purchaser. Many purchasers can get the impression that they have no choice but to use the builder’s mortgage broker if they want to buy the property. There are rules in place that give any potential purchaser the right to independent advice, and it is important for contractors to be armed with an appropriate mortgage ‘Agreement in Principle’ when making an offer.
A new home builder’s preferred mortgage supplier may vary in quality, but it is likely that they will be used to arranging mortgages via standard evidence of income. i.e. via trading accounts and payslips. This can present inherent problems if they do not understand how to utilise gross contract earnings into the affordability model for the lender.
For any contactor looking to purchase a new build property, it is certainly prudent to seek guidance from a specialist contractor mortgage broker at the outset. This will help the contractor to obtain an agreement in principle based on full gross contract income before making an offer on a new build property, which minimises the risk of an adverse lending decision later in the process.
To find out more about new build contractor mortgages, please call 01489 555 080 to speak to one of our experienced contractor mortgage consultants.