Financing a New-Build Property: Mortgage, Developer Instalments and Drawdown

Most buyers finance a new-build with a combination of their own savings and a mortgage. The money is not paid all at once: part goes to the developer according to a payment schedule during construction, and the bank pays out the rest in drawdowns. It is worth arranging the mortgage and the contract with the developer at the same time, because they depend on each other.

How payment for a new-build usually works

Unlike buying a finished flat, a new-build is paid for in stages. First you sign a reservation agreement and pay a reservation fee. This is followed by a contract for a future purchase contract, or another type of contract, depending on the model chosen. The remaining price is paid in instalments as construction progresses.

The specific model differs from developer to developer. It is therefore important to know exactly what you are signing, to whom and on what conditions the money is sent, and what happens if construction is delayed or not completed. For general information, see the new-build buying guide.

A mortgage for a new-build

A mortgage for a flat under construction differs from a mortgage for a finished property. The bank has to take into account that the collateral is not yet a completed property, so it usually does not pay out the whole amount at once. Document requirements, valuation and drawdown conditions vary between banks.

What to prepare:

• proof of the applicant's income and liabilities,
• the reservation agreement or another contract with the developer,
• information about the project, such as the building permit and the design documentation,
• details of the own funds you will put towards the purchase.

Conditions change, so discuss current offers, the amount of own funds required and your borrowing options with a mortgage specialist. The calculator gives you a rough idea of the repayment, but a binding offer always comes from the bank.

The developer's payment schedule

The payment schedule sets out when and in what amounts you pay the developer. It is often tied to construction milestones, such as completion of the shell construction or the final approval (kolaudace). The schedule is part of the contract and should be clear and verifiable.

When checking the schedule, look at:

• whether each instalment is tied to a specific, documented stage of construction,
• whether the payment goes to the developer's account or to a separate account (for example an escrow account),
• what share of the price remains to be paid only on handover or transfer of ownership,
• what penalties apply for late performance on either side.

Have the contract reviewed by a lawyer who specialises in property before you sign it. With a new-build, this is one of the most important protections for the buyer.

Drawing the mortgage during construction

The bank usually releases the loan in parts, always in line with the payment schedule. Before paying out the next part, it may ask for proof that construction has progressed. If the developer's schedule and the bank's conditions do not match, a problem can arise: under the contract a payment is due, but the bank has not yet released the funds.

So find out in advance:

• how the bank confirms a drawdown and how long it takes to pay out one part,
• what documents it will need from you and from the developer,
• whether you will have to finance part of the price from your own funds before the first drawdown,
• how the period is handled before your ownership right and the bank's lien are entered in the land registry (katastr).

Good preparation means that both the mortgage specialist and the developer know the other side's schedule before you sign. Differences can often be resolved by adjusting the schedule.

Risks and how to reduce them

The main risk of financing during construction is that you are paying for something that does not yet exist. You can reduce it in several ways:

• check the developer, its previous projects and whether its earlier projects have been completed,
• find out whether the project has the necessary permits,
• make sure payments are not made in advance and without being backed by construction progress,
• allow for a time buffer in case completion is delayed, bearing in mind that the mortgage fixation period or the rent on your current home may continue to run,
• keep a reserve for extra costs, such as furnishings, a kitchen or flooring.

Step by step

1. Choose a location and a budget. You can browse projects in the new-build catalogue or by location.
2. Agree with a mortgage specialist on a realistic loan amount.
3. Ask the developer for a draft contract and the payment schedule.
4. Have the contracts checked by a lawyer.
5. Align the developer's schedule with the bank's conditions.
6. Follow the progress of construction and the drawdowns, and keep all documents.

If you are not sure which project fits your budget, you can use the housing enquiry.

Frequently asked questions

Can I have a mortgage approved before I sign the contract with the developer?

Often yes, but banks differ in their procedure. Some already require a specific contract for the project. We recommend consulting a mortgage specialist beforehand so that the timing does not get out of step.

What if construction is delayed?

The consequences depend on the contract, both with the developer and with the bank. Check how the contract deals with delays and withdrawal, and have any unclear points reviewed by a lawyer.

Do I need my own funds?

Usually yes; banks typically require a certain share of own funds. Specific conditions change, so confirm them with a mortgage specialist.