Mortgage on a new build that won't be completed for 8+ months

Scott9824

Hi all,

Long time reader but have just signed up to get a bit of advice as I'm getting really conflicting information from brokers and IFA's.

I'm 22 and a first time buyer. I have reserved a plot on a development that won't be ready until the "end of March" however the developer wants to exchange contracts within 28 days. I will talk them down to a 5% deposit on exchange of contracts so that's not a problem, my only problem is getting a mortgage offer which is valid until then.

I have spoken to L&C and a local broker who was recommended by the developer and they both mentioned Halifax. I went directly to Halifax and they offered me a mortgage promise which is valid until 25th October 2012, at which point a full mortgage application will need to be made which will then be valid until the end of April 2013. However the rates they have offered aren't the best, e.g. 2yr fixed 5.29% with a £995 product fee, £315 valuation fee. For what it's worth, Halifax said I have an "A" credit rating, so I don't really understand why I've been offered such a rubbish deal!

I've spoke to the developer to see if this would be satisfactory until closer to the time so I can apply for a better mortgage, but I have been told no, I need a full mortgage offer to exchange contracts.

I've also spoke to other banks/building societies and been told they can offer a better rate with no product fee but it won't be valid for that long... so really not sure what to do. I could go with Halifax, pay the valuation fee and then apply for something better closer to the time, but then I lose £315.

Any advice would be greatly appreciated!!!

Thanks,
Scott

ACG

The builder might have agreements in place. However as you have been told, offers tend to be valid for a set period - at most were talking 6 months. But i dont know of any lenders would do what your after on a property that hasnt been built yet.

The good thing about it though is that if you cant do it...neither can anyone else.

Scott9824

ACG wrote: »

The builder might have agreements in place. However as you have been told, offers tend to be valid for a set period - at most were talking 6 months. But i dont know of any lenders would do what your after on a property that hasnt been built yet.

The good thing about it though is that if you cant do it...neither can anyone else.

Thanks. Yeah the only lender I can find is Halifax on not so good rates with a not so good product fee, but they have specific rates for new builds with <20% deposit so that's what I'm on and that's why the dates are longer than they normally are.

getmore4less

You need to make sure the contract has etout clauses.

late build.
financing fails(they can withdraw the offer at any time).
job loss etc.


it is not unknown for a builder to only complete the sold houses and abandon a site unfinished.

ACG

i suppose it depends on how much you want the property then. New builds tend to lose value in the short term, so if you purchase this with a 5% deposit you will probably be in negative equity for the first few years.

This is only really an issue if you intend to sell in the near future.

Scott9824

getmore4less wrote: »

You need to make sure the contract has etout clauses.

late build.
financing fails(they can withdraw the offer at any time).
job loss etc.


it is not unknown for a builder to only complete the sold houses and abandon a site unfinished.

It's a large developer (Barratt Homes), the development is more than half built, with around 80-90 houses currently occupied. I don't think they will agree to any clauses like that but it's worth trying. Late build is a concern. I am happy with my employment situation and the company I work for but I'm sure many others have said that, but I feel I am in a really secure job role at this moment in time.

Thanks for the advice :cool:

i suppose it depends on how much you want the property then. New builds tend to lose value in the short term, so if you purchase this with a 5% deposit you will probably be in negative equity for the first few years.

This is only really an issue if you intend to sell in the near future.

Yeah, I am really happy with the price, location, deal I have been offered, literally everything to do with the property. I'll be putting down 15% deposit, that's 10% me and 5% builder, but I am only going to offer to pay 5% at exchange of contracts as completion is so far away.

Cheers!

kingstreet

Some lenders, particularly Halifax, have special newbuild products with longer drawdown deadlines than the norm.

You need to look for a lender with such a product range to establish what is going to be the best deal for you.

Builders always want a 28 day exchange with completion at their leisure, and the drawdown deadline of the mortgage offer is one of the obvious drawbacks of such a situation.

Thrugelmir

Scott9824 wrote: »

For what it's worth, Halifax said I have an "A" credit rating, so I don't really understand why I've been offered such a rubbish deal!

Then I would suggest that you don't commit to the exchange. Save a larger deposit that will enable you to obtain a better deal.

The builders deposit will be factored in when the property is valued for mortgage purposes. As this is the builders way of maintaining the apparent sales value of the property when logged at Land Registry.

In reality a 10% deposit means you will be charged a higher rate of interest. As reflects the risk to the lender.

kingstreet

If you hadn't already reserved, I'd say delay your reservation until such time as completion is within the usual six month drawdown deadline. Then this problem goes away.

littlesparkles

I'm buying a new build and the original expected date was Jan 2013. Nationwide were willing to discuss and secure a mortgage when I reserved the property at the beginning of July. Not as long a time period as you but it could be worth speaking to them. I have 15% deposit plus the builder's 5%. The fixed rate is 4.19% for 4 years.

Also do Barratt have a financial advisor that they recommend? I'm buying with Taylor Wimpey and I spoke with their recommended advisor. Although it was a bit too early to be looking at mortgages, the advisor said that TW would cover any extra fees incurred due to the long completion date. I'm not sure exactly how that was going to work and I have now not applied through the advisor and the build date has been brought forward to November.

Good luck!

littlesparkles

Also I only had to pay £99 fee to Nationwide. The valuation was free.