How much will a new build cost if you fall for a freebie?
With mortgage lenders cautious about anything less than two years old, Laura Howard finds developers resorting to desperate measures to attract buyers
Sunday 18 May 2008
It's common knowledge by now that mortgages are much harder to come by than they were this time last year. But the new-build section of the housing market has been hit particularly hard as lenders tighten their criteria for what is seen as a more "risky" type of property.
BM Solutions last week reduced its maximum loan to value (LTV) from 85 to 75 per cent of the selling price of new-build apartments, while Scarborough building society went a step further, insisting on a deposit of at least 30 per cent.
Other lenders are more cautious still. Coventry building society insists on a staggering 50 per cent downpayment on all new-builds. And if the new home is for buy-to-let investment purposes, the risk is too great altogether for lenders such as the Chelsea building society, which has pulled out of this market.
"Prospective purchasers of newly built properties, particularly flats, may well find lenders less willing to part with their funds," says Darren Cook, head of mortgages at financial analyst Moneyfacts. "Although exact definitions as to what constitutes a 'new build' vary from lender to lender, typically it is a home that has not previously been occupied or is not more than one to two years old."
The knock-on effect that stricter criteria are having on housebuilders is plain to see. Last Wednesday, Barratt Developments announ-ced a 33 per cent drop in sales agreed each week, compared with this time last year. Another housebuilder, Redrow, has just reported a spate of job losses, blaming this on a 50 per cent fall in the number of reservations for new homes compared with a year ago.
Desperate times call for desperate measures. Fair-view Homes, for example, is offering "the ideal solution to help first-time buyers get on to the property ladder" with its "Move in Free" promotion. The housebuilder promises to pay the equivalent of a 5 per cent deposit, to cover the stamp duty and legal fees – and even to throw in some cashback too.
Its rival George Wimpey will pay "half your mortgage for the next two years" (well, the interest – and as long as it doesn't exceed 6 per cent) if you reserve a home this month from a selected development.
But buyers should approach such arrangements with caution. Consumer groups have accused some developers of over-inflating valuations to an extent where the "freebies" may be nothing of the sort. For example, if the incentives add up to £10,000 and the home is valued at £150,000, it may actually be worth only £140,000 or even less.
This is making lenders nervous about new-build homes, says Melanie Bien, director at Savills Private Finance: "They have been caught out by inflated valuations in the past, and the housing market downturn is now exacerbating the problem."
With prices continuing to fall – by a further 1.3 per cent in April, according to the Halifax – this situation can only get worse.
"Generous" incentives aren't just targeted at first-time buyers. Barratt Homes currently has a part-exchange offer for people finding it difficult to sell in the dampened market. It will buy your old home if you purchase a new one from one of its latest developments. However, the new property must be at least 30 per cent more expensive than the one you are selling – and the valuations will be arranged by Barratt. You will also need to have a mortgage of less than 90 per cent LTV.
Whatever the incentives, prospective buyers should remember that, in today's market, they are the ones holding the cards, says Lynsey Sweales, director at mortgage broker The Money Centre – especially if they've done their research. "Check what similar properties in the area are selling for and speak to local estate agents with no connection to the developers," she advises. "You have a bargaining tool to try and secure an even bigger 'discount', which you should not be afraid to use."
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
Questions of Cash: Bupa costs bore no relation to what I'd been quoted
Five Questions On: Pensions advice
Problem gambling: Amid heavy advertising and a surge in remote sports betting, more and more 16 to 24-year-olds are now seen as 'at risk'
Gardens add a tenth to the value of your home
Simon Read: Retirement advice is good - if it's impartial
- 1 Is Gideon Levy the most hated man in Israel or just the most heroic?
- 2 Students offered grants if they tweet pro-Israeli propaganda
- 3 Satellite full of sexually experimental geckos adrift in space, Russia loses control of mission
- 4 Exclusive: Cameron’s Big Society in tatters as charity watchdog launches investigation into claims of Government funding misuse
- 5 Israel has discovered that it's no longer so easy to get away with murder in the age of social media
The 'scroungers’ fight back: The welfare claimants battling to alter stereotypes
Arizona execution lasts two hours as killer Joseph Wood left 'snorting and gasping' for air
A day in the life of Vladimir Putin: The dictator in his labyrinth
Malaysia Airlines MH17 crash: Ukrainian military jet was flying close to passenger plane before it was shot down, says Russian officer
Malaysia Airlines MH17 crash: Massive rise in sale of British arms to Russia
Malaysia Airlines MH17 crash: victims’ bodies bundled in black bags and loaded onto trains
iJobs Money & Business
£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...
£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...
£280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...
£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...
Day In a Page
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar