Insights

Understanding the New Build Sector

Mortgages 3 min read 23/01/2024

The new-build mortgage market is hugely important for borrowers and brokers, and it’s set to grow further. The government has shown willingness to back the property market, through supply-side investment, tax breaks and homeownership schemes to support demand. It’s clear there can be no let-up in the drive to build more homes while demand continues to outpace supply. But, despite being part of the mainstream mortgage market, new-build lending has specialist features that make it more challenging. A raft of initiatives from government, lenders and developers all provide buyers with more choice, but with that choice comes complexity and a greater need for broker advice.

For brokers, the sector can feel like a closed shop, with some of the biggest developers having established referral relationships in place with new-build specialist advisers. However, it is possible to increase your new-build business and carve out a niche in this important part of the mortgage market. Not only does it mean you can help more of your clients, but it also makes good business sense too.

 

Post-pandemic bounce back

This government has a target to build 300,000 new homes each year by the mid-2020s, just to meet demand. But its aim looks unlikely to be reached despite steady progress before the pandemic. The first lockdown had a huge impact on homebuilding – there was a 52% fall in new starts1 in the second quarter of 2020 alone. However, things have improved as the country has started to open up. New starts in the year to June 2021 were up 32% and completions up 26%.2

 

Sustainable new homes

Newly built homes are also greener homes, and they are driving the shift towards a sustainable housing market, which will become more important over the coming decade. Recent figures show that 85% of new homes have an EPC rating of A or B3, much higher than the UK average D-rating. The Future Homes Standard will also come into effect in 2025 to ensure developers build homes with ‘world-leading levels of energy efficiency’4, according to the government. The benefits of energy-efficient new homes are clear in terms of lower carbon emissions and cheaper running costs. Plus, buying a new home means your client could access one of the growing number of green mortgages, enabling them to potentially access lower rates.

Couple looking at property listings

Mortgage specialism

The new-build sector is large and multi-faceted, with borrowing restrictions that can make finding a mortgage more difficult. That’s why broker advice is so valuable. While most providers are willing to lend on new build, many limit maximum LTVs and other restrictions can apply. There’s also the complication of timing with new-build purchases. Not only do brokers need to look for lenders who can move extremely quickly on time-sensitive cases but also those who can be flexible when build delays happen, as they often do on off-plan purchases. If your client buys through a homeownership scheme such as shared ownership, or if they go down the self-build or custom build route, there could be processing differences, more documentation required and a restricted choice of mortgages deals. It all adds an extra layer of complexity to the mortgage and purchase process.

 

Broker opportunity

Despite the challenges, there’s a clear opportunity for brokers to carve out a niche in the growing new-build market. The first step to building a new-build specialism is to learn more about the sector. Make sure you understand each of the homeownership schemes, lender timescales and criteria differences and talk to peers about their experiences in this market. Start to have conversations with builders in your area as well as estate agents and housing associations to find out about upcoming developments. That way you can arm yourself with knowledge and be ready to support your clients in this growing sector.

 

References: 

1https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/922911/Housing_Supply_Indicators_Release_June_2020.pdf 2https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1022274/Housing_Supply_Indicators_Release_June_2021.pdf 3https://www.gov.uk/government/news/latest-figures-show-increase-in-new-energy-efficient-homes 4"https://www.gov.uk/government/consultations/the-future-homes-standard-changes-to-part-l-and-part-f-of-the-building-regulations-for-new-dwellings

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