New Build Buy to Let Mortgage
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New Build Buy to Let Mortgage
Matt Coulson and Richard Campo explain how Buy to Let mortgages work for new build properties.
Can you get a Buy to Let mortgage on a new build property?
Yes, absolutely. The new build sector is a huge growth area. We’re recording this at the start of 2025 and the Labour government has committed to build 1.5 million new homes in the next five years. That falls squarely into Buy to Let territory. We haven’t hit 300,000 a year for a long time. So I hope they do it.
I wouldn’t be surprised if landlords step into this space because there’s a very obvious need for more rental stock in the market. At the point of recording, apparently there are 2.82 million private landlords in the UK – which is probably a lot more than people think.
The average landlord has eight properties in their portfolio, which has significantly increased. There are now fewer landlords with more properties – that’s been quite a long-term trend. You can absolutely do it, and there’s the option to buy property in a limited company. There’s no major differences around the mortgage, but it caters for that market.
What are the eligibility requirements for a new build Buy to Let mortgage?
If you are considering a new build Buy to Let mortgage, the right thing to do is to talk to an advisor for advice around your own specific situation. But we’re going to be generic for the purposes of this answer.
Typically, you’d need at least a 25% deposit. As with a regular residential mortgage, the bigger the deposit, the better the rate you would achieve. Often with Buy to Let, the lender would expect you to be a homeowner already. That’s not always the case, but it’s fairly typical.
Lenders look very carefully and closely at the rental income the property can achieve. Because it’s a new build, it won’t have any historic rental income attached to it, so this is based on a valuation. As part of the mortgage process, the bank will instruct a surveyor or valuer to visit the property – or go to the marketing suite if it’s still under construction. They gauge not only the value of the property but what it’s likely to achieve when rented out.
That’s the key driver as to what you can actually borrow. The lenders also apply a stress test to that, to address the chances of a potential rate increase in the future.
Are there any restrictions on using a Buy to Let mortgage for properties that are new builds?
Not really. The only restrictions that come to mind around new build purchases is around apartments or flats. Some banks require larger deposits for that, but that’s typically, 5% or 10% deposit for residential purposes. Most banks want a 25% deposit for a Buy to Let mortgage anyway, which completely eradicates that issue.
Some banks don’t want to lend on more than 10% or 20% of a certain development site, depending on its size. That’s down to lender specifics. At Heron, we work with a lot of major developers and we manage those conflicts. We might know that lender A isn’t an option so we go to lender B, and we’ll know that at the front end.
Otherwise it’s pretty straightforward in terms of Buy to Let – although Buy to Let in itself isn’t straightforward. As Matt said, the rental calculations are so important. So to look at that in more detail, see our Buy to Let page. That breaks down those calculations in a lot more detail.
And that will drive how much you can borrow. Even if a lender offers a 25% deposit mortgage, does the rent actually justify that? In central London and more affluent areas, it can be quite difficult to get to that threshold because the rental income doesn’t stack up. Conversely, in urban areas in the north it’s actually a lot easier to hit that mark.
Can you get a new build Buy to Let as a first time landlord?
Yes, you can. For a first-time landlord, irrespective of whether the property is new build, there are likely to be fewer lenders available. The majority of Buy to Let lenders generally want you to be a homeowner and potentially an experienced landlord.
But it is possible. In recent years, we’ve seen a growing trend of people buying through limited companies.
They set up a company to buy and own that property. A lot of people have accountants who advise them around the tax, which is the driving force there.
Again, there are restrictions if you are a First Time Buyer. Having a conversation with a mortgage advisor very early in that decision making process will just ensure that you’re aware of the reduced choice you have. Then you can build the property search around the availability of mortgages for a first timer.
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How much deposit is required for a new build Buy to Let mortgage?
The market average is 25%. That’s always been the case. It’s the magic number for mortgages because house prices have never gone down more than 25% in any one cycle. A 25% deposit means you’re low risk to the bank.
Buy to Let is deemed as risky because there are more arrears. It’s an investment. People aren’t as committed to it as they are their home, so that’s why lenders want larger deposits.
The second point is around the stress test. It’s more difficult now that interest rates are higher than they were. They are still below historical averages, though. There’s about a 300-year history of the Bank of England, and the average rate of lending is 5.5%.
We’re now in January 2025, and the rate is 4.75% – so it’s below that long term average. But we’ve just come out of a 1% era, so it’s a bit of a shock to the system.
That’s why stress testing is so relevant, because when rates were very low, banks would check you can still afford it at 5%. If you’ve got a 1% mortgage, it’s quite right to stress that at 5%. But now interest rates are closer to 5%, banks stress it at 7% and 8%, which makes affordability difficult.
That also affects the deposit. Because if you can’t meet that stress test requirement, a bank won’t lend you 75% of the property value. They might lend you 60%. Theoretically, you could go down to a 15% deposit, and years ago, it was 10%. The more buoyant the market, the lower the deposit, as long as the rent can achieve the stress test calculation.
Are there any schemes or help available for Buy to Let investors on new build properties?
At the time of recording, technically no. However, we have seen a move in this direction. The Own New rate reducer scheme, which is available at the moment on new build properties, is predominantly aimed at people looking for residential mortgages. But there have been instances where that scheme has been available to potential landlords, albeit it’s been quite niche. That could be an area that grows.
Buy to Let is not generally a sector of the market that’s been supported by schemes. Typically, schemes, whether they’re government-led or otherwise, are geared towards people buying their first home. If you’re looking at Buy to Let as a potential income generator for you, assume there’s not going to be a scheme – it’s not something that we typically see.
What are the advantages of new build Buy to Let?
The obvious advantage is that they’re more energy efficient. We’re just coming out of a cost of living crisis, and renters are far more discerning – they don’t just look at the rent, but also the running costs of the property. There’s a potential opportunity there.
If you know what the market rent is and the utility costs are lower, there’s a good argument to increase the rent, because the overall running costs of a new build are less. New builds have to be built to an A or B efficiency rating on an Energy Performance Certificate (EPC) to meet legislation.
As a business we’re very invested in this – because if your property is more efficient, there’s less carbon, there’s less running costs, and it’s great for the planet and it’s good for you.
There’s also less maintenance. Generally, most work is covered under a 10-year guarantee which is brilliant from an investor’s point of view. You’re not going to get any nasty surprises. You could buy an old Victorian property and the boiler goes – and as a landlord that’s your problem. Typically, it doesn’t happen in a new build.
While there’s no history of letting in the property, you tend to get pretty good information. Developers know what they’re doing and how much a property will let for. If it’s particularly a big development, there’s going to be a fairly clear market so you will know what the rent’s going to be.
Back to that Victorian property example, you can have a row of those where one is really high spec and the next isn’t. That rental variability is far greater with secondhand properties.
Lastly, developers offer incentives, they do vary in time. Typically they will throw in certain fixtures and fittings or maybe give you cashback. You could have a conversation around the setup of the property as well. There are huge positives with new build, from an investment point of view.
What are the disadvantages?
The good news is there aren’t many disadvantages. The elephant in the room is that historically there has been a ‘new build premium’. That’s often referred to in the press – when people buy a new home versus an existing home of equivalent size you pay more for a brand new property.
But with the move towards energy efficiency and utility bills now a very real consideration in terms of monthly outgoings, that new build premium may well be justified. So you might pay a little bit more because it’s new. If you are really stretching what’s possible with your budget, perhaps an older property might be more affordable.
Also, there are still tenants that prefer a character property – that typical Edwardian or Victorian house. The British property market is full of certain styles that inspire love and attention from people. There will always be tenants that like older style properties.
But there’s a balanced view on this. When looking at the government’s targets and the number of landlords in the UK right now, people will no doubt head towards new build for property investment, because there are just so many upsides. More and more tenants prefer that kind of property because they are so easy to live in. So if you are looking at getting into Buy to Let investment, new build presents a really great opportunity to do that.
You’ve both demonstrated how a mortgage broker can help, but is there anything else to add?
Just speak to a broker as early as possible. I’ve mentioned stress tests, and we haven’t even gone into that in detail today because it’s so complicated. Buy to Let is a more complex area of the market, so a broker can really help shape your search and get you in the right space to avoid problems down the line.
Equally, because this is a more complex area, there are lenders that do not deal with the public at all. So as a broker we have specific access to lenders, products and rates that you simply won’t get. You could also obtain a cheaper deal by talking to us.
Heron has a great heritage of working with developers and this is a sector we know extremely well. Some brokers don’t really understand new build, and there are certain things you have to be careful of. We can manage all that for you. It’s all very easy. Everything’s online and we’ve got great software and tech, so we make the whole process as slick as possible for you.
We work for you, not the bank, as I always say. We have your interests at heart, and we’ll always try and get you the right outcome.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
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