ost lenders won’t lend more than 85% of the value of a new-build house and offer only 75% on a new-build flat. Photograph: Christopher Furlong/Getty Images
Q My partner and I have put our names down for a new-build property in north-west England, with the completion date in November or December. We expect to get a valuation of the property in July, which should be about £152,000 for a small two-bedroom house.
By the time we are due to apply for a mortgage we reckon we would have saved enough to put down a cash deposit of 10% of the value of the property. However, we have been advised to look into the 20% help-to-buy scheme due to some lenders not offering mortgages for new-builds where there is only a 10% deposit.
In essence, we know how much we can save and how much the house is worth – we are just confused about the best option to take with the mortgage.
Another option would be to borrow a further £5,000 from our parents, which could push us up to the 15% mark.
We don’t want to get stung by high interest rates from the small number of lenders willing to offer 90% of the value of the house. But we also don’t want to be paying the fees and interest on the 20% government loan after five years, or having to repay 20% of the value of our house when we decide to sell it.
We are looking for some advice before our brains explode, as if moving back in with my parents to enable us to save wasn’t hard enough! JS
A I don’t think you should worry about being stung by super-high interest rates with a 90% mortgage. According to data published by Moneyfacts, there are several lenders willing to lend up to 90% of the value of the property and offering mortgages with competitive rates of interest.
But you are right to think you have a limited choice of lenders when it comes to getting a 90% mortgage on a new-build property, as most won’t lend more than 85% of the value of a new-build house and offer only 75% on a new-build flat.
Because of the limited number of lenders, it makes sense to use a mortgage broker such as London & Country or Capital Fortune, both of which have access to special new-build mortgage deals. Both can also make sure the mortgage offer has a validity of six months rather than the usual three, which can help ensure that any mortgage offer doesn’t expire before the property is built.
You would, of course, have more choice if you borrowed the £5,000 from your parents because you would only need a mortgage of 85% of the value of your new-build house and more lenders would be willing to lend to you. Borrowing from your parents would also mean that you would still own 100% of your home after you bought it.
With the help-to-buy scheme, you would own only 80% of the property outright until you paid off the government’s 20% loan. But you don’t have to borrow the full 20% from the government. You could borrow just 5%, for example, which would limit the government’s stake in your home and give you £7,600 towards the purchase price. However, it would be simpler to borrow from your parents and keep your home entirely for yourselves.