With the housing market at a standstill and first-time buyers struggling to qualify for mortgages, builders of new build homes are offering a range of incentives in order to shift their stock.
These include shared equity, deposit matching and part exchange. Some developers will even pay interest on money lent to you by your parents.
But are these perks any good and do you really want to buy a new build anyway?
The new build sector has certainly suffered in recent years. The over-valuation of new builds in the heady pre-credit crunch days means many lenders now shy away from lending on this type of property.
However, some pundits are upbeat about buying this type property and say there are still some bargains to be had.
‘For new builds, there are undoubtedly some decent deals still available and as with anything it is about doing some research,’ says Andrew Montlake of mortgage broker Coreco, ‘In the right areas demand for property should keep prices level and whilst there is always a slight premium for new build do not be afraid to make an offer and haggle just as you would on any other property.’
Since the slump, help for the new build sector and first-time buyers has come in the form of Government schemes such as FirstBuy Direct, a shared equity scheme, which helps first-timers struggling to raise a decent deposit. There are also a number of similar shared equity schemes offered by home builders.
What's on offer from the developers?
Higgins Homes’ Step Up scheme, Persimmon’s Helping Hand and Miller Homes’ Mi Way all offer 15 per cent equity loans which are rent or interest-free for a certain amount of time. The buyer generally needs to raise a 5 per cent deposit and obtain a mortgage for the other 80 per cent.
But before signing up for a shared equity scheme check that if property prices fall, the amount owed under any shared equity scheme falls with it. And bear in mind that if prices rise, the cost of buying back the unowned equity share will also increase.
House builders also have several schemes which help borrower out with deposits. Persimmon offers Parent Payback which allows parents or other close relatives to provide up to 20 per cent deposit towards a first time buyer’s home. The money earns 5 per cent interest per annum for two years.
Miller Homes offers a similar scheme Family Deposit incentive, also with 5 per cent interest on the money. It’s a pretty good rate of interest at the moment but parents should remember the money will be inaccessible until the property is remortgaged at an appropriate loan-to-value.
Miller also offers Miller Deposit Match whereby the home builder matches the amount a customer saves for their new home deposit, up to 5% of the purchase price, meaning the borrower will need a 90 per cent mortgage as opposed to 95 per cent.
Elsewhere Fairview New Homes offers a ‘Fresh Start’ package, seemingly aimed at divorcees, which offers a furniture package or help with child maintenance. Alternatively David Wilson Homes gives Armed Services personnel buying through FirstBuy a £500 ‘Choices’ voucher for every £25,000 they spend on their new home. The vouchers can be spent on fixtures and fittings.
Mortgage lenders are still wary?
However, mortgage lenders are still nervous about new build properties due to the fact that they are notoriously hard to value correctly. Hence many lenders will limit the maximum loan-to-value (LTV, the percentage of a property’s value borrowed as a mortgage) they allow.
‘Whilst some will allow builders’ incentives they all have to be carefully explained up front and verified,’ explains Montlake, ‘They will all prefer to see the buyer putting in some of the deposit monies themselves rather than relying wholly on the builder’s incentive.’
Part exchange: no chain and a step up the ladder
For movers trading up the ladder, several home builders offer part exchange schemes which allow homeowners to trade in their existing property in part exchange for a new build property. Linden Homes, Bellway, Miller Homes, Persimmon, Bloor Homes and Barratt all offer this.
Although this saves money on estate agents’ fees and provides a guaranteed buyer straight away, the downside is that you probably won’t receive the full market value for your property.
However, with property not shifting quickly at the moment, a part exchange deal could mean the difference between moving and not moving.
Ray Boulger, senior technical manager at mortgage broker John Charcol says part exchange takes away a lot of the hassle of a private sale, especially if a private sale would probably be in a chain.
‘Different people will put a different value on that but I think part exchange can be particularly useful in a quiet market or if a quick sale is needed, perhaps to snap up a new property the developer is trying to sell at a good price because it is desperate for some more completions by its year end or half year end,’ he says.
One potential pitfall is that not all homes will be deemed suitable for home exchange. You will also need to be buying a significantly more expensive property with the one you’re trading in usually worth no more than 70 or 75 per cent of the new build’s value.
Always negotiate and be careful what you sign up for
Even if a home builder is offering incentives, help with deposits, or part exchange, buyers should still negotiate on the price of any property they’re buying.
‘With any sales environment there are always high pressure tactics used to get people to commit and sign on the dotted line there and then,’ says Montlake, ‘I have always believed that the higher pressure exerted the more desperate a salesperson is and if you can hold firm, taking time to think about things logically, you will actually achieve a better deal and be more comfortable with it.’
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