The market value of a new build home
Since 2018, you can finance 100% of the market value of a home through your mortgage, as is the case with existing homes. The market value of a new build house is often calculated on the basis of the following 3 amounts (this can vary from lender to lender):
- Purchase/property contract price
- Additional work
- Loss of interest during construction
1. Purchase/property contract price
When you buy a new house, you sign what is known as a ‘purchase/property contract agreement’. This consists of 2 parts: the purchase agreement for the plot of land, and the building contract for constructing the house. The purchase price is paid via the solicitor to the developer of your new build project. The contractor is paid in instalments, as opposed to a lump sum. The first instalment of the property contract sum is usually paid directly at the solicitor’s office. The total purchase/property contract price is included in the market value of your home.
2. Additional work
Additional work entails any work that falls outside the standard construction plan as defined in the contract. The contractor performs this work to finish the house according to your personal taste. This can include work on the kitchen and bathroom, floor coverings, or the positioning of wall sockets. It may also include the plastering and painting of walls, or part of the garden landscaping. All this adds up, but it also helps to increase the market value of your home.
Does the extra work comprise more than 20% of the purchase/ property contract price? If so, there are lenders who may want to view a valuation report, to determine whether the value of your house will increase by the same amount.
3. Loss of interest during construction
In determining the market value, the loss of interest during the construction of your new home can also be partly included. To summarize, this constitutes the difference between the interest you pay to the lender, and the interest you receive on your down payment for your new build home. The loss of interest may not exceed 4% of the purchase/property contract price.
You can include this loss of interest in your mortgage to offset the cost of maintaining 2 homes. You will already start paying interest and making repayments on your new mortgage during the construction of your new home. Throughout this period (lasting 6 to 12 months on average), you will probably also incur expenses from your current accommodation.
At Viisi we recommend that you use your savings to pay for these double housing costs rather than taking out a loan, mainly because the interest on this part of the loan is not deductible.