Different ways to finance new build homes in the UK

There are a number of different options available for property investors and developers to finance new build homes. Whether you are a first time buyer or experienced developer, there are several mortgage options available in the UK. Given the importance of selecting the right financial product, the services of an independent mortgage broker can prove invaluable. As an independent mortgage broker, we specialise in helping clients navigate the complexities of new build financing. Below, we outline the different ways you can secure funding for a new build property.

1. New Build Mortgages

New build mortgages are generally standard mortgage products that are designed to fund properties that have recently been constructed or are currently being constructed. While they are an attractive option for property investors and developers, they are subject to a number of different restrictions which apply to new build properties. These restrictions will be levied by the lender and will include stricter lending criteria and lower loan-to-value (LTV) ratios. However, working with a commercial mortgage broker can help you find the most competitive deals.

Key Features:

• LTV ratios typically range between 75% and 85%
• Some lenders require larger deposits for new build flats (e.g., 15% to 25%)
• Some lenders impose time constraints on completion to ensure the property meets expected valuation

2. Self-Build Mortgages

For those constructing a home from scratch, a self-build mortgage is an ideal solution. Unlike a traditional mortgage, funds are released in stages to cover the cost of construction at key milestones.

Types of Self-Build Mortgages:

• Arrears Stage Payments: Funds are released after each stage of construction is completed.
• Advance Stage Payments: Funds are provided at the beginning of each stage, helping with upfront costs.

3. Buy-to-Let Mortgages for New Builds

Investors who plan to purchase a new build property and rent it out (Buy-to-Let) can take advantage of the various BTL mortgages available on the market. While some lenders may be cautious about offering BTL mortgages on new builds, it is generally a well-established investment, with a number of different lenders offering products. While the BTL market may be subject to fluctuations and changes, an independent mortgage broker can help you make fully-informed investment decisions.

Key Considerations:

• Typically require a 25% deposit or higher
• Rental income projections must meet lender affordability criteria
• Some lenders have restrictions on the number of properties owned by the borrower

4. Bridging Loans

B ridging loans are a popular option as they offer investors the ability to secure funds quickly, enabling them to take advantage of a limited time offer. Bridging loans are commonly used for land acquisition, development or the purchase of new build properties. While they may offer higher interest charges, they are flexible and can offer the borrower timely access to funds.

Advantages:

• Fast access to funds (sometimes within days)
• Can be used for both land purchase and development costs
• Suitable for buyers who need to complete quickly

A commercial mortgage broker can help structure bridging finance to align with your exit strategy, ensuring a seamless transition to a longer-term mortgage solution.

5. Development Finance

For developers constructing multiple units, development finance provides staged funding throughout the build process. This type of financing is assessed based on the project’s gross development value (GDV).

Features:

• LTV can be as high as 70% of GDV
• Funds are released in stages as work progresses
• Interest rates typically higher than traditional mortgages but tailored to project needs

6. Government Schemes

There are various government-backed schemes available to assist with financing new build homes:

• Help to Buy Equity Loan: Available for first-time buyers purchasing new builds, providing a government loan of up to 20% (40% in London) to reduce the required deposit.
• Shared Ownership: Allows buyers to purchase a percentage of a property while paying rent on the remainder.
• First Homes Scheme: Offers discounted new build homes to first-time buyers who meet eligibility criteria.

7. Commercial Mortgages for Developers

Developers looking to fund larger projects may require a commercial mortgage. These loans are tailored to businesses and property professionals undertaking substantial developments.

Benefits:

• Customisable repayment terms
• Higher borrowing limits compared to residential mortgages
• Can be structured with interest roll-up to improve cash flow during development

Conclusion

In conclusion, the financing of new build homes can be complex and time consuming. While there are hundreds of mortgage products available, finding the best one can be tricky. In this way, the services of a mortgage broker can prove invaluable. Working with an independent mortgage broker ensures access to the best deals tailored to your specific needs. Whether you’re a homeowner, investor, or developer, our expertise in commercial and residential mortgage solutions can help you secure the most suitable financing. Get in touch with our team today to explore your options and make your new build project a reality.