Updated: April 22, 2024
New Build Mortgage Valuations
Considering a new build but worried about it being down valued? There are options! Find out what your exact next steps need to be in our in-depth guide.
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Buying a new build property may seem like a sound bet. New builds require minimal (if any) work when you move in. However, they can be difficult to buy due to new build valuations often being lower than the marketed selling price.
The difference in price versus valuation can negatively impact applying for a mortgage. Here, we investigate new build mortgage valuations so that you can make an informed decision as to whether buying a brand new property is right for you.
The following topics are covered below...
Are new build valuations always lower than the asking price?
While new build valuations can never categorically be said to be lower than the asking price, there’s definitely a tendency for that to be the case. Many lenders will often value new builds at a lower price because their criteria for valuing them will differ from that of a developer.
Do you need a valuation?
Typically, new builds need valuations though not always. Developers will often conclude a price for a property, but lenders will often want to corroborate that with their own valuation. They do so to ensure that they are not lending too much money on a property that may not give them enough return in the unfortunate case of repossession.
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Why new build valuations can be lower
New build valuations are often lower for the following reasons:
Lenders valuations
A lender’s valuer will look at different factors to ascertain a true market value compared to how a developer arrives at an asking price.
A developer will be looking at how much it will cost to build the house in terms of land price, materials and labour. They will want to make more than the “sum of the parts”. A valuer working for a mortgage lender will be looking at potential resale value, which is dependent on factors like location and house size.
Risks
New builds, despite the regulatory building requirements they have to adhere to, are more likely to be built in locations that pose higher risks. For example, properties built near airports, busy roads, sewage sites or landfill locations.
The knock-on effect of that is, not only does that pose a risk to the property itself, it makes reselling at its original asking price more difficult. In the case of a repossession, lenders may be forced to sell it for lower than the original asking price.
Depreciation
New builds depreciate more quickly than older houses; from the moment you move in, they are no longer new. The premium you pay for the house being new becomes null and void, so the asking price often depreciates as a consequence.
Additionally, new builds are more likely to be built as part of a development. If you wanted to sell your nearly new home, there could be other ‘actual’ brand new homes surrounding it that are also available. You will likely need to market your home at a lower cost to attract a buyer. Hence a mortgage valuation being lower.
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How a broker can help
Brokers can be a massive helping hand to anyone looking to buy a new build home but is struggling to get a mortgage due to a lender’s lower valuation. A specialist new build broker will be able to pinpoint a mortgage lender for you that offers a product where you meet the eligibility criteria.
The brokers we work with will understand what your options are if you find the difference in valuations prevents you from buying a property. They will know how other factors can affect your ability to get both a mortgage amount and an interest rate you can afford.
If you get in touch we can arrange for an advisor to contact you directly.
What to do if your valuation is lower than asking price
If the valuation for your new build house is lower than the asking price, that can leave you in a bit of a bind. You may not be able to borrow enough to buy the house at the asking price as lenders will not want to loan you more than they think the house is worth. If that is the situation you find yourself in, there are a number of things you can do.
While you may not be able to negotiate with a lender as to how much the valuation on your new build is, you can go back to the developer and renegotiate the agreed sale price. However, you may find that you are not always able to lower their price by enough (if at all). Developers have overheads they need to meet in addition to profit margins to ensure their development makes them a large enough return on investment. However, as the phrase goes, if you don’t ask, you don’t get.
You could approach a new lender that may use a different valuer and therefore come to a different valuation. Or, you could find a lender that is happy to loan you a higher amount. That could attract a higher rate and therefore increase your repayments.
As a result, you need to ensure that you can afford a more expensive mortgage. A broker could help you find a rate that you can cover as well as identify a lender whose requirements you meet for that higher loan-to-value (LTV).
The final option is that you simply stump up more cash from the outset. As a result, you will not need to borrow the higher amount to cover the sale price. Of course, the drawback is that you may not have that cash readily available and need to look at different deposit sources. Again, that is an area in which a broker could help. They may be able to find a lender that is happy to loan you the necessary amount if your cash deposit is not enough.
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Using our unique broker-matching service we’ll be able to put you in touch with a specialist mortgage broker who has a wealth of experience working with new build valuations and new build mortgages. That experience means they have the right knowledge and the right contacts to ensure you secure the best mortgage with the best rates.
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FAQs
Valuations on new builds are conducted similarly to a valuation on an older residential property. A professionally qualified valuer will inspect the property in question and conclude its value. They will consider factors such as location, size of the property, prices of other property in the area, the demand for new homes, amongst many other variables.
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We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in all different mortgage subjects. Ask us a question and we'll get the best expert to help.
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Pete Mugleston
Mortgage Expert, MD
About the author
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!
