What are the benefits of getting a mortgage in principle first?

Getting a mortgage in principle before you begin viewing properties can make the home-buying process much easier. It can show sellers and estate agents that you are a serious buyer and that you can move forward when the right property comes along. It can also take some of the stress out of searching, as you will have a clearer idea of your borrowing limit and can focus your attention on homes that fall within your budget. As an added benefit, it may help speed up the process once you are ready to make an offer, while also giving you a stronger position compared with other buyers.

Important things to remember about mortgage in principle.

• The final mortgage offer may differ from the mortgage in principle amount.
• You can request more than one mortgage in principle if you wanted to compare lenders and explore different rates
• Mortgage in principles are usually valid for a limited period, often around 60-90 days, after which you may need to renew it.

Can a first-time buyer reserve a New Build before getting a mortgage in principle?

In simple terms, yes, a first-time buyer can reserve a new build property before getting a mortgage in principle. This usually involves paying a reservation fee to secure the property. However, it is generally not recommended, as without a mortgage in principle, you will not know for certain how much you may be able to borrow. This means there is a risk of reserving a property that may be outside of your budget. In many cases, experienced sales advisors will also want to see your mortgage in principle before accepting a reservation, as this helps avoid wasted time and effort for everyone involved.

What is a New Build reservation?

A new build reservation is when you agree to secure a specific property with a developer by paying a reservation fee. Once this has been done, the developer will usually remove the property from the market for a limited period, often 28 days, to give you time to arrange your mortgage, appoint a solicitor, and start the legal process. Although it is not the same as exchanging contracts and does not carry the same legal commitment, it is still a key step in the process of buying a new build home.

A reservation fee is the payment you make to secure a new build property and show that you are serious about going ahead with the purchase.

As part of this stage, you will usually sign a reservation agreement. This document outlines the key terms of the reservation, including the property details, the agreed purchase price, the length of time the home will be held for you, and any conditions that must be met before the sale can progress. It will also explain what happens if the reservation is cancelled and whether your fee will be refunded.

Is the reservation fee refundable?

Whether a reservation fee is refundable will depend on both the developer and the specific circumstances of your purchase. Although most reservation agreements state that the fee is non-refundable, this does not always mean it will automatically be lost.

There are situations where a refund may be offered. These can include your mortgage application being declined with no alternative finance available, unreasonable delays by the developer’s solicitor in issuing the contract pack, or a significant issue arising during the legal process that was not made clear at the point of reservation. You may also be able to receive a refund if you decide to withdraw within the cooling-off period.

What is the cooling period?

A cooling-off period gives you a set window of time after reserving a new build home in which you can change your mind and, in many cases, receive your reservation fee back. Since April 2023, the New Homes Quality Code has required registered developers to offer a cooling-off period and to provide clearer terms around reservation fees and refunds. If your developer is a member of the scheme, this should give you added protection if you decide not to proceed within the allowed timeframe.

It is a good idea to check whether your developer is registered with the New Homes Quality Board, as this will help you understand what rights and protections apply to your purchase. It is also worth remembering that the reservation fee is usually deducted from your deposit when you exchange contracts, so it is not typically an additional cost, but an early payment towards the total amount you will need.

What are the differences between a reservation fee and a deposit?

Reservation fee:

• Paid at reservation before contracts
• Not legally binding
• Non-refundable with exceptions
• Secures the plot being taken off the market temporarily

Deposit:

• Paid at the exchange of contracts
• Legally binding
• Forfeited if you pull out after exchange
• Legally binding purchase agreement

What you’re committing to VS what you’re not.

One of the most common misunderstandings first-time buyers have is thinking that reserving a new build property means they are legally committed to buying it. A reservation is an important step, but it is not the same as exchanging contracts. Before signing a reservation form, it is important to understand exactly what you are agreeing to.

When you reserve a new build home, you are showing that you intend to move forward with the purchase. This means you are expected to act promptly by instructing a solicitor, applying for a mortgage, and progressing matters within the reservation period. You are also committing to that specific developer for that plot. In addition, you will be expected to provide accurate information about your finances and your buyer status. In return, the developer agrees to remove the property from the market for the agreed period.

What you are not doing at this stage is entering into a legally binding agreement to complete the purchase. Until contracts are exchanged, you can still decide not to proceed, although you may lose your reservation fee depending on the circumstances.

This stage is designed to give you time to carry out the necessary checks before becoming legally committed.

Common mistakes first-time buyers make when reserving a New Build home.

The reservation stage is often where problems begin for first-time buyers, not because there is anything wrong with the property or the buyer, but because of simple mistakes that can lead to delays. These simple mistakes include:

• Reserving a property without first getting a mortgage in principle. Without one, you will not have a clear idea of how much you may be able to borrow, and the developer may question whether you can proceed.
• Delaying the instruction of a solicitor. Ideally, you should already know which solicitor you plan to use before you reserve, so they can be instructed straight away
• Failing to check their credit file early enough. When you submit your full mortgage application, the lender will carry out a more detailed credit check. If there are any unexpected issues on your file, this could delay the process.
• Underestimating the total cost of buying a new build home. Having a full understanding of the likely costs from the beginning can help you avoid surprises later.
• Not reading the reservation agreement carefully enough. Taking the time to review the agreement thoroughly can help you avoid misunderstandings and make more informed decisions.

What happens if I don’t exchange contracts within 28 days?

In many cases, first-time buyers do not exchange contracts within 28 days, so this is not unusual. The reservation period is often treated as a target rather than a strict deadline. If you can show that you are making genuine progress with your mortgage, solicitor, and the legal process, many developers will be willing to extend the reservation period.

The most important thing is to communicate as early as possible. If you think there may be a delay, it is always better to let the developer know sooner rather than later. Waiting until the last moment to ask for more time can make the situation more difficult, whereas keeping everyone updated can help the process continue more smoothly.

Use our calculator to understand how much you could potentially borrow for your new build home.