by Mark Johnston
New build properties offer many advantages over older homes. In short they are nice, new, neat and tidy. Perfect for first time buyers who do not want to renovate their first home, or buy to let landlords who want to rent out the place as soon as possible with out having the delay of decorating.
However, getting a mortgage on a newly completed property it seems is far harder than on an existing, previously owned home, even though a new home should be maintenance free, while the existing home might be riddled with damp and full of hidden defects.
Over 2 years ago some lenders began to restrict what they would lend to borrowers who were buying a new build property. These lenders said at the time that they felt they could not rely on valuations of new build properties, especially on new build flats. Lenders were worried about the resale value of new homes if buyers defaulted on the loans early.
Most lenders down valued newly built properties far more than they did established homes at the application stage and a low valuation meant they did not qualify for a big enough mortgage to complete the purchase.
This was the right move in most cases at the time as new build flats have fallen in value faster than any other part of the property market. According to smartnewhomes.co.uk, new build flats have dropped by 17% in value in the last year.
So called ‘gifted deposits’ where developers agreed to boost the buyers savings with a lump sum tended to look good but lenders view them as evidence that the property was overpriced in the first place.
Many lenders also tightened their lending criteria on build properties and increases the size of deposit require from borrowers.
Halifax, for example only required a 10% deposit for most first time buyers buying an older property but wanted 20% if they were buying a newly build property. Nationwide also required a 25% deposit on newly built properties. Both lenders required a much bigger deposit from buy to let investors thinking of buying a new build, a huge 35%.
However, recently it seems that lenders are gearing up to relax their criteria on new build properties, according to mortgage industry insiders.
Richard Sexton, a director at Esurv, the largest provider of valuation services in the UK stated “a couple of years ago new builds were repossessed more than average, now it’s less than average. The market is on a far more even footing”.
Andrew Montlake, a director at mortgage broker Coreco, added “undoubtedly, lenders are looking a bit more kindly on new build. The dire predictions in 2008 and 2009 have not come to pass and the market seems relatively stable”.
HSBC said recently it believed the new build market had stabilised and it was now safe to raise its loan to value (LTV) ratio. The bank will be increasing the loan to value (LTV) ratio on new build property from 75% to 85%.
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