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Mortgage on a New Build Flat

Shadi El-Balbisi talks us through the process of getting a mortgage on a new build flat

What are the unique considerations when obtaining a mortgage on a high-rise new build flat?

A high-rise new build flat is one of the more complex scenarios that we deal with. Lenders have lots of specific definitions around flats.

Some will define that a high rise building has four storeys while others say six. Some have restrictions if a building has eight storeys, while others won’t look at anything with more than 10. Each bank has its own individual criteria.

There are usually other requirements, like there needing to be a lift – which is probably a good thing because no one wants to go up and down ten storeys every day. The construction of the block is always really important, especially in light of controversy around cladding – lenders are highly aware of that.

They also look at resale factors and property concentration, which is important when it comes to selling the property.

What do lenders class as a new build flat? How do I know whether my flat qualifies?

A new build is generally defined as property that’s been built, converted or refurbished within the last two years. There are a lot of converted flats near here in Manchester and the Salford area.

These are properties that have never been sold. New builds can include properties that are being bought off plan, as well.

What types of mortgages are available on new build flats?

Lenders offer conventional mortgages on new build flats. The majority do have Loan to Value restrictions and they usually want a 15% to 20% deposit – but with some lenders that doesn’t apply – they may go as low as 5% deposit.

The criteria are easing in this area sector as the demand for and quality of new builds is increasing all the time. That’s certainly a good thing, and mortgages on new build flats are getting better all the time.

How does buying a new build flat affect how much I can borrow and the deposit required?

Lenders can be more strict depending on their criteria, the type of flat, the number of storeys, the area and the property concentration.

It’s not just a 5% minimum for everyone. But at the time of recording in February 2024, the criteria are getting more and more favourable, so it will vary subject to each individual application.

Do new build flats increase in value?

They do, but it depends on the timescale. It’s not the case that you can do some cosmetic renovations and flip them within a year. They tend to be more expensive initially, so that’s worth bearing in mind in terms of the increase in value.

They do tend to retain the value really well, due to lower maintenance costs, lower energy costs and the fact that there’s not much upkeep to them.

It’s also worth bearing in mind that new build flats can be more desirable to tenants. So if you decide to buy a new property in future, you could keep this one for rental purposes. Flats can be very attractive to tenants and give you a higher rate of rental income.

What is the new build premium in the UK?

Given the fact that you are buying something that’s ready made, good to go and done to a high standard, they are more expensive than a conventional purchase.

They are more expensive initially, but they do have advantages like lower maintenance, upkeep and energy costs.

Is it worth buying a new build flat? What are the advantages and disadvantages?

The quality of new builds has increased a lot, and they are more energy efficient. You also have the advantage of a warranty and the NHBC scheme, which means you’re covered for 10 to 15 years on your property. There are a lot of advantages to a new build.

There are also some things to consider. Because of the new build premium it can be harder to obtain a mortgage. Depending on the developer, sometimes the quality might not be as good, but that’s more of a rarity now. It is definitely worth buying a new build.

How does the height of a flat affect mortgage options and rates?

Some lenders restrict their criteria if the building is too high. Some won’t lend on ex-council flats or high-rise buildings, for example. That can potentially restrict the number of lenders and products available. It’s not impossible – I’ve done many of these over the years.

The appetite for this is growing and restrictions are easing all the time. There’s also a leasehold reform coming into effect which will help with things like ground rent and lease restrictions. So as the number of new builds grows, the appetite for this kind of property is getting more favourable for borrowers.

Are there any additional costs associated with purchasing a new build flat?

Aside from the new build premiums, there are leasehold costs. There is always a ground rent – it’s usually peppercorn rent, but you need to factor it in. There is a service charge as well, paid to the buildings management company. These can vary, and can reach up to a few hundred pounds a month – so it’s definitely worth considering when budgeting.

There can be parking costs if spaces are limited. If you’re buying off plan it’s also worth exploring the cost of additional extras like fixtures and fittings.

When you’re buying the property, double check what’s included in the price initially so you’re not having to pay too much for the extras.

What factors could affect the resale value of a new build flat?

One of the main factors is property concentration. Some lenders are concerned that new builds will become hotspots for Buy to Let investors, and if that’s the case they may put restrictions on that.

There have been instances where people have bought new build properties and landlords snap up the rest of the building – that’s a concern for lenders because they want a certain concentration of homeowners, not just rental. All lenders factor that in.

How does the age and condition of the building affect the mortgage process?

There are a lot of people who historically bought new builds that had cladding, for example, or certain construction types that were initially fine, but were subsequently deemed unsuitable for remortgages. They ended up as ‘mortgage prisoners’.

This is becoming less of a concern since legislation came in, and the quality of properties is increasing. But it is always worth checking that the construction type is suitable for mortgage purposes. In some instances the lender might not want a valuation, but it’s worth checking yourself.

What should buyers be aware of when purchasing a leasehold flat?

One thing I would stress, as well as the service charge and ground rent cost I mentioned earlier, is the length of the lease. If the length of the lease is under 85 years, banks are reluctant to lend. That’s one of the first things to check before you start spending money on valuations.

It’s also worth bearing in mind the terms of the lease, in case the lender deems it to be onerous. For example, if the freeholder has the capacity to increase the service charge or ground rent at their discretion, they would be reluctant to lend. You could also be stung financially.

If the flat is high rise would that affect my mortgage chances?

It’s just slightly more difficult to obtain a mortgage on a high rise building as lenders often have restrictions around the number of storeys. It restricts the number of options available, but it is still very much possible to get a mortgage.

What role does the building’s management company play in the mortgage process?

It’s a relatively limited role. The majority of the process is done through me as the broker and your solicitors.

There are a couple of scenarios where they may get involved. The lender might ask for a particular fire safety form called an EWS1 form. The management company is important in that particular aspect. They may also be the point of contact for the valuation, so the solicitors might contact them for details on the lease. But they don’t play a huge role.

Are there any specific documents or reports that buyers of new build flats should request before applying for a mortgage?

As I mentioned previously, it’s really important to check the length of the lease, the ground rent and service charge. It’s also worth looking at energy efficiency reports, as well.

One of the main advantages of a new build flat is that the energy costs are lower. Also, a lot of lenders offer green mortgages, whereby they offer slightly lower rates if certain energy efficiency criteria are met.

It’s also worth getting a valuation should you be approved for the mortgage. Given the loan to value, it’s unlikely that lenders would conduct one – but given problems with building constructions in the past, it might be worth considering as part of your purchase process.

How can a mortgage broker like The Mortgage Store help if anybody is looking for a mortgage on a new build flat?

This is an area where you’d need a mortgage broker most. There are hundreds of lenders with thousands of products to choose from, but you won’t find the most cost effective option on a price comparison site.

With the complex nature of the criteria, and different definitions of high rise, each lender is different. Without advice, it can be a really frustrating experience. I’m here to save time and money for all my clients, but with a scenario this complex it’s more necessary to use a reliable broker to help you find the most suitable deal.

Your home may be repossessed if you do not keep up with your mortgage repayments.