New Build Joint Mortgage
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New Build Joint Mortgage
Richard Campo explains how joint mortgages work for new build properties.
How do joint mortgages work for new build properties? Is it any different?
No – ultimately a mortgage is a mortgage. It is driven by a couple of things, primarily around affordability, which is probably the key theme for this podcast. The main difference between a joint and sole mortgage is that you are jointly assessed for affordability. That will be based on all your income, all your outgoings, all your credit profiles – and you both have to match.
We’ll expand on that as we go. The assessment is no different, but new build property adds another specific element within the criteria. It drives the level of deposit and sometimes the amount of borrowing. So while the assessment is no different, we have to look at both people’s situations and make sure they fit the lender’s new build criteria.
What is the eligibility criteria for joint mortgages for a new build property?
There are two separate strands for this – the joint element and the new build element.
On a new build, it will largely be around the deposit – as a bare minimum you will need a 5% deposit. Eligibility will include your credit profile and joint income.
There’s a legal term that’s always fun: “You are jointly and severally liable for the mortgage.” It means that once you’re both on the mortgage, you both need to keep paying it – you’re both liable. If one person stops paying, the lender isn’t going to go to let the other one off. You’re very much going into this together.
If one of you had a credit issue in the past, that’s relevant. If one of you has very significant outgoings, that’s relevant too. It’s crucial to get the fact finding done right off the bat, because we can then circumnavigate most issues. We don’t want to start going down the path, realise it’s not going to work and then turn back.
It’s something we’re particularly geared up for – we look at your credit file at the outset. It might feel a bit overboard on day one, but it’s to make sure we meet all the eligibility criteria. The main things are income, outgoings and credit profile. Once we get a good sight of that, we can confirm the lender we will go for.
How much deposit do I need for a joint mortgage on a new build property?
The minimum is 5%. There are lenders that offer 100% mortgages right now – although that changes in time – and at the moment those aren’t available on a new build property.
As with any mortgage, the larger the deposit, the more choice you have. The maximum deposit that makes a difference to mortgage lending is 40%. So the minimum is 5% and then for every additional 5% deposit you put down, your choice of lenders increases and the cost decreases.
The larger deposit you put down, the less risk you are to the bank – and that’s reflected in a lower interest rate. The lowest risk comes in with a 25% deposit – because house prices have never gone down more than 25% in any one cycle. You’re low risk to the bank at that point and pricing improves from there up to 40%.
One very specific point around new build is that if you’re buying an apartment or flat, some lenders do require larger deposits. That will be dependent on property values. In London and the Home Counties, some flats can be £500,000, £1 million, £2 million, £3 million… so big deposits might be required. Houses can be a bit easier, but the higher the value, the larger deposit you may need. It depends on your situation.
How much can you borrow with a joint mortgage on a new build? What’s the most you can borrow on a new build with a joint mortgage?
The advantage with a joint mortgage is that you can simply borrow more. It’s hard to buy on your own these days. Most lenders will give you 4.5 times your joint income. There used to be a difference if you bought singly or jointly – and joint borrowers could borrow less. The good thing with the move to affordability checks is that’s now irrelevant.
Banks just have affordability models, and you can borrow more with a joint salary. As a bare minimum you probably need a joint income of over £50,000, but typically once you reach £75,000 to £100,000 – and it doesn’t matter how it’s split – some lenders will then be more generous. Some would go to five, 5.5 or even six times income.
Some banks are more generous with First Time Buyers, so they will go up to six times income there, but that does fluctuate in time and may vary on a new build property. Typically First Time Buyers have lower outgoings and probably don’t have children – which are brutally expensive, like my girls. That can make it easier to lend First Time Buyers more.
The other caveat tends to be around high net worth. If you hit the high net worth definition, which is an income of £300,000 or £3 million worth of net assets, lenders can take a more risk based view where those affordability rules don’t apply.
High net worth typically tends to apply on lending above £1 million, because we look at private banks at that point. They’re the two extremes – First Time Buyers and high net worth tend to get preferential treatment.
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Can I get a joint mortgage on a new build property if I have bad credit?
People often have a negative view – but if you’ve had a credit issue in the past please talk to us straight away. We get access to your credit file and you would be amazed at how generous lenders can be.
It depends what it is. To some people, bad credit is a missed payment on a credit card five years ago, but to others it’s a massive CCJ or being repossessed. There’s a huge spectrum of bad credit.
From our perspective, it’s all about when it occurred. Banks don’t tend to worry about missed payments that are more than two years old. With something more formal like a CCJ or a default, if it’s more than two years old, most high street banks would be fairly comfortable. Anything over six years isn’t looked at, so that’s good news.
The second thing is like the amount. If it’s a missed payment of a few hundred pounds, that’s not a big one. If CCJs or defaults are under £500 each, some lenders will take a view on it. For debts more than £500, the lender needs to have a special adverse licence.
Lenders are more amenable than you think. If your credit problems stem from a personal issue, such as a business going wrong, they often understand. It can happen when people move home and a bill goes to the old address. That’s typically where we see it most.
Whatever the situation is, just explain it to us. If you have the deposit, good income and there’s a strong reason for what happened, we can generally find you an option.
Can I buy a new build with a joint mortgage if I’m self-employed?
Yes. Again, it depends on a few factors. You need to have been self-employed for at least a year. If you’re more than two years down the line, you’ve got most of the high street available to you. If it’s three years plus, you’ve got the whole market.
Then we get down to the specifics of the type of self-employment, and three main types come to mind. You might be deemed a limited company director, and we’ve got a specific page for more detail on that. Typically, the assessment will either be around the net profit of the business or the salary and dividends you take.
Another one is sole traders, and that’s nice and straightforward. If you work on your own and produce your annual accounts, your net profit is what will be assessed. The last one is a hybrid type: day rate contractors – where you work on a specific fixed term contract for three, six or 12 months and you get paid a day rate.
Even if that’s run through a limited company, there’s a slightly different assessment. We could do the limited company assessment I mentioned. But for a contractor, we can take that day rate, times that by five if you work full time, and then multiply up by a 46 or a 48 week year – allowing for gaps in contracts and holiday.
That figure is taken as your income for the loan. It tends to be more favourable, because a limited company director wants to keep their tax to a minimum. You probably run your business in a very cost-effective way.
Those are the main ones for the self-employed. It’s not a problem. We just have a conversation with you around the most favourable assessment and we can plot a path forward from there.
What help can we get to buy a new build house?
Getting the government to build more houses would be good, but we’re talking now in December 2024 and this Labour government does say it will build and build. It would be lovely to look back on this in a few years and see if they achieved that goal.
Specifically, there’s not a lot of help, to be honest. We previously had the Help to Buy scheme that ran for quite a while. That’s now ended unless you’re in Wales, although some developers fund their own Help to Buy types of scheme where they take an equity share with you.
Outside of that, shared ownership is an option and I’m a big fan of that. Again, we’ve got a shared ownership page on our website, so please have a look at that. It’s a great way to get into a property that you can’t afford today. You might buy a 25%, 50% or 75% share and you can staircase up later.
Developer incentives are another option. Some developers will give cash back or deposit – typically limited to 5% of the property value. If incentives exceed 5% of the property value, lenders tend to exclude them. Developers know the rules and how to structure things. They might throw in cash back, some furniture or help with the fixtures and fittings. That’s more down to negotiation.
A very specific product to the new build sector is Own New where, rather than getting incentives from the developer, that money goes to the lender. They then bake that into a much lower interest rate on the mortgage. Again, we’ve got a specific Own New page on our website.
I’m generalising here, but the UK base rate as we talk today is at 4.75% and with Own New you can get mortgage rates below 1% – that’s how cheap it is. If that’s of interest, please do get in contact with us because we’re one of the few brokers in the UK that can access that.
Do you pay stamp duty on a new build if it’s a joint mortgage?
Oh yes. You pay tax for everything. They can tax you when you die, so you’re not getting out of that from a house purchase, and all the usual rules apply. I would suggest you use an online stamp duty calculator like stampdutycalculator.org.uk which is for England and Wales – there’s a separate one in Scotland because the rules are slightly different.
Go on that, because the cost varies depending on whether you’ve owned previously or you’re a First Time Buyer, and also if you own another property. Find a good calculator to work it through, as it can be quite significant.
How can a mortgage broker help me get a joint mortgage for a new build property?
The main point here is that when you put new build and joint mortgages together, you have a couple of different strands at play. That can be tricky from a criteria perspective. You might just go to your day-to-day bank, and they might not offer you the loan that you need. They might need a bigger deposit or the assessment may not suit you.
The beauty of a broker is that we can look across the entire market for you. If Lender A doesn’t do it, we go to Lender B. We will sit down with you to explore your goals and objectives and plot a path forward. You are our client. We work for you, not the bank. We want to put pounds in your pocket, not the lenders’.
We get the most favourable terms on the market and we often get exclusive rates. The worst case is that you pay the same rate as if you go to your bank. We also have direct access to lenders, which can save a lot of time as dealing with banks directly can be a cumbersome process these days. We circumvent all of that with our criteria tools or by speaking to underwriters.
You’re busy doing what you’re doing. If you’re buying a house these days, you’re doing well. People have to work really hard to get a deposit together and buy a home. So rather than take a load of time out of your day, let us do the donkey work. We’ll make your life easier and get you the right outcome.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
Useful Links
- Self Employed Mortgages
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- Contractor Mortgages
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- High Net Worth Mortgages
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