Equity Release and New Build Properties: How Best To Support Your Clients

Gavin Hancock - Underwriting Team Manager

Published on 3rd June 2021

As the pandemic begins to loosen its grip on the nation, interest in the housing market is gaining momentum, which also correlates with the rising availability of new build homes. The latest figures show that the number of dwellings which had building work started on site reached a total of 42,110 from October to December 2020, representing a 16% quarter-on-quarter increase. Given that these figures followed on from a 116% increase from July to September 2020, this is the first consecutive quarterly increase since June 2017.

Given the greater availability of new build homes this may increase the probability of your next client requiring a later life mortgage to fund the purchase of their new build home. Due to this expected increase in demand we've produced a new guide dedicated to using equity release to purchase new build properties (printed copies can be provided to individual clients on request) to ensure you and your clients are kept well informed of the finer points of the process, and the way it differs from purchasing a regular property using equity release.

Lifetime mortgages and new build properties: the basics explained

Whether a client is seeking to buy a new build or an older property, lifetime mortgages can be used to purchase properties by securing any additional funds they may require against the new property and topping up the funds the clients already have from savings or the sale of their existing home.

So why are the processes different? Pre-loved homes tend to be of a more traditional brick or stone construction, and will have stood the test of time, and while new build homes can often be construction of a standard traditional construction they can also be built from more modern materials such as concrete or reinforced steel and can differ greatly in design.

Also as they will have only been standing for a very limited period of time, we require an acceptable warranty to guarantee to build. Service charges and/or estate rent charges are also common on recently or newly-developed estates, whereby the developer sets up a management company to collect payments from the freeholders and oversee maintenance of the development and communal areas, and in these cases the amounts payable and terms of the agreement must meet criteria. The valuation process also differs as the new build property may have been bought 'off plan' and may not have been fully constructed. In these cases a surveyor would inspect the site and provide a valuation based on the property being fully completed and a re-inspection would need to take place once the property has been fully constructed.

Key considerations

Key points to consider if you are looking at using a lifetime mortgage to buy a new build property include:

  • You should provide a copy of the NHBC Buildmark or other new property warranty so that we can check and approve it. A full list of acceptable warranties can be found using our Criteria Search function on our website.
  • If the construction is not standard bricks and mortar (or is a modern method of construction) please make sure that this is checked via the Criteria Search function, or through contacting your business development manager.
  • Please provide copies of any lease, service charge or maintenance agreements as soon as possible to streamline the process. These should include details of the amounts, who the ground rent and/or service charge needs to be paid to, and the escalation terms i.e. Does this double every 20 years or are any increase RPI linked, so that we can assess acceptability.

It's also important to note that offers are valid for 42 days and that the new build process can take longer than the purchase of a previously owned property, due to it potentially being a more complex transaction. It is therefore crucial that we obtain have the information detailed above as early as possible to help us process the application as efficiently as possible. Offers can be extended, however it should be noted that this could result in the applications being re-assessed and potentially offered on different terms.

Here to support you, as always

In summary the key for getting your next new build client through to completion as seamlessly as possible is ensuring all paperwork relating to the new build is submitted as early as you can in the process so that these can be reviewed by our expert team of underwriters. Our team of professional underwriters are also available as always via info@pureretirement.co.uk to answer your new build pre-applications enquiries.

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