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Average UK Mortgage Rates on New Constructions

A concise guide to the average mortgage rates for newly built constructions and what you can do to influence your quoted mortgage rates in your favour!

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin2024-07-17
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Average UK Mortgage Rates on New Constructions

Embarking on a self-build is an exciting challenge - but the financing can be a complicated process.

If you haven't used construction financing before, we'd strongly recommend using an experienced broker to guide you through the application and ensure you only apply to the most relevant lenders.

In this guide, we'll summarise what you need to do before applying for a construction mortgage. For more assistance, or to begin an enquiry, contact the team at 0330 304 3040 or drop a message to [email protected].

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What are Construction Mortgages and how do They Work?

In short, a construction loan is like a self-build mortgage, whereby you borrow money for the costs of the building project.

The process involves:

  • Budgeting for the total costs for the build.
  • Breaking down that budget into stages.
  • Having the work verified by a surveyor after each stage is completed.
  • Drawing down the relevant proportion of the financing.

In most cases, you don't need to start making repayments until the construction is complete. You will usually only pay interest on the funds you have drawn down so far.

What are the Criteria for a New Construction Mortgage Application?

The exact rates and terms depend heavily on the building's cost, the type of property, and your financial circumstances.

Typical rates and terms are:

  • Deposit requirement of at least 20% to 40%.
  • Detailed building plans are required, including planning permission, a contractor’s agreement, and full cost estimates.
  • The loan is drawn down in tranches as each stage is completed.
  • Most lenders are specialists, although they can release funding through a bank.
  • There are fewer lenders available than for a standard residential mortgage.
  • Interest rates are typically higher.

In comparison, a residential mortgage usually requires a lower deposit of 5% to 40%, depending on the circumstances. The lending is generally issued in one lump to finance the property purchase, and administered by a mainstream lender.

The eligibility requirements on a regular mortgage are less strict, and the interest rates often a little lower.

How Do I Start Searching for a Construction Mortgage to Build a House?

There are a few different steps to take before you start sending off any applications.

  • Appoint a broker - this is vital since you need an experienced professional to signpost your application to the right lenders, and streamline the application process.
  • Review your credit rating - checking on your credit score, and eliminating any errors, is essential, as credit checks are a mandatory part of the mortgage approval process.
  • Set a maximum budget - the limit as to what you can borrow will depend on your annual income, your existing obligations, and your debt to income ratio. Revolution Brokers can calculate this for you to assess the maximum of what you could borrow.
  • Apply for pre-approval - your broker will recommend the best lender to apply to, and seek initial pre-approval without leaving a mark on your credit file. You can then decide whether the rates are acceptable and start the full application process.
  • Find a contractor - the experience, knowledge and quality of the building work is critical, so it's wise to spend some time looking through reviews and testimonials and visiting previous projects before selecting a builder. They will need to help you with a construction plan and designs, and it is vital to have a clear contract with timescales, costs and fees.
  • Apply for the loan - once you have everything in place, you can proceed with the mortgage application.

Which Lenders Offer the Lowest Rates on New-Build Construction Mortgages?

The right lender for you will depend on your planned build, income, and what deposit you have available amongst many other factors.

To find the most competitive rates, you can use an online calculator to indicate your repayments, but note that these are only ever estimated.

Revolution Brokers can help you assess your circumstances, and provide independent advice about the best mortgage application options.

Professional Advice with New Construction Loans

Our team is independent, and whole-of-market, meaning that we aren't tied into any lender or product, and can advise on the best possible loans that we believe are best suited to your circumstances.

As experienced self-build mortgage brokers, Revolution Finance Brokers assists with everything from compiling the application, to negotiating the rates offered.

Give us a call on 0330 304 3040 or email us at [email protected] for more information about what you could borrow, and the lowest rates available.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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