New-build buy-to-let mortgages finance a newly constructed property intended for rental.

Lenders may set different loan-to-value limits for new-build houses and flats.

The valuation, developer incentives, lease terms and completion date can all affect the mortgage.

Off-plan buyers should consider what happens when the mortgage offer expires before construction finishes.

What counts as a new-build property?

A lender may treat a property as new-build when it is:

• newly constructed;
• recently completed;
• being purchased directly from a developer;
• converted into residential use;
• substantially rebuilt;
• occupied for the first time.

Definitions vary between lenders.

A property can remain classed as new-build for a period after completion, even if another buyer previously reserved it.

Why do lenders treat new builds differently?

New-build properties can involve risks not found in established homes.

These may include:

• limited comparable sales;
• developer pricing;
• concentrated local supply;
• service-charge uncertainty;
• construction delays;
• snagging issues;
• resale premiums;
• short ownership history;
• lease restrictions;
• changing rental estimates.

A lender wants confidence that the property remains mortgageable beyond the first sale.

Deposit and loan-to-value limits

Some lenders apply lower maximum loan-to-value limits to new-build flats.

The limit may differ for houses.

For example, a lender could accept a smaller deposit on a new-build house than on a new-build flat. This is not a universal rule.

The decision may depend on:

• property type;
• location;
• purchase price;
• developer;
• block size;
• lease length;
• estimated rent;
• applicant experience;
• ownership structure.

A larger deposit may improve lender choice, but it does not resolve every property concern.

Developer incentives

Developers may offer:

• deposit contributions;
• legal-fee payments;
• furniture packages;
• service-charge contributions;
• cashback;
• upgrades;
• rental guarantees.

All incentives should be disclosed to the lender and valuer.

The lender may deduct incentives from the effective purchase price. This can change the loan-to-value calculation.

Failure to disclose an incentive can delay or invalidate the application.

Mortgage valuations

A mortgage valuation protects the lender rather than the buyer.

The valuer may consider:

• comparable local sales;
• achievable market rent;
• developer incentives;
• block concentration;
• construction quality;
• lease details;
• service charges;
• local rental demand;
• future saleability.

The valuation can be lower than the agreed purchase price.

A buyer must then decide whether to:

• increase the deposit;
• renegotiate the price;
• try another lender;
• withdraw from the purchase.

Another lender does not guarantee another valuation result.

Off-plan completion periods

An off-plan property is reserved before construction finishes.

The mortgage offer may be issued months before completion.

Risks include:

• the offer expiring;
• mortgage rates changing;
• lender criteria changing;
• the applicant’s finances changing;
• rent estimates falling;
• construction delays;
• the property value changing.

An adviser should check how long the mortgage offer remains valid.

Some lenders consider extensions. Others require a new assessment.

Leasehold checks for new-build flats

Most new-build flats are leasehold.

The lender and solicitor may review:

• remaining lease term;
• ground-rent clauses;
• service charges;
• estate charges;
• restrictions on letting;
• short-term letting restrictions;
• cladding and building safety;
• management-company arrangements;
• planned major works.

A strong rental forecast cannot correct an unacceptable lease.

Legal review should begin early rather than shortly before completion.

Warranty and construction standards

Lenders often require an acceptable new-home warranty or professional consultant’s certificate.

The warranty provider must normally meet the lender’s requirements.

The property may also need:

• planning approval;
• building-control sign-off;
• an energy performance certificate;
• suitable road access;
• completed communal areas;
• acceptable utilities.

A mortgage adviser can check lender criteria. A solicitor and surveyor address the legal and physical details.

Rental guarantees

A developer may offer a guaranteed rental return.

The figure should be examined carefully.

Questions include:

• Who provides the guarantee?
• How long does it last?
• Is the rent above the local market level?
• What happens when it ends?
• Are management charges deducted?
• Does the lender accept the guaranteed figure?
• Can the property be let independently?

The lender may use the valuer’s open-market rent rather than the guaranteed rent.

New-build buy-to-let FAQs

Do new-build flats require larger deposits?

Some lenders apply lower loan-to-value limits to new-build flats.

Can a developer pay part of my deposit?

Some incentives are accepted, but they must be disclosed and meet lender criteria.

What happens if completion is delayed?

The mortgage offer may need extending or replacing.

Will the lender use a rental guarantee?

Not necessarily. The lender may use the valuer’s open-market rental assessment.

Is a mortgage valuation a full survey?

No. Buyers may wish to arrange a more detailed inspection or snagging survey.

Finding an adviser

A new-build buy-to-let adviser can help coordinate the mortgage timetable with the expected completion.

The adviser should check:

• maximum loan-to-value;
• property type restrictions;
• acceptable incentives;
• offer validity;
• rent calculations;
• developer concentration limits;
• leasehold requirements;
• company ownership criteria.

Use the Buy-to-Let Mortgage Brokers directory to compare relevant advisers.

A development project requiring construction funding is different from buying a completed new property. Those cases may require development finance mortgage brokers.