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

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."

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Call Centre Debt Collector - Multiple Roles

    £21000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

    Guru Careers: Financial Director / FD / Senior Finance Manager

    Up to 70k DOE: Guru Careers: We are seeking an experienced Financial Director ...

    Recruitment Genius: Junior / Apprentice Sales Executives - OTE £50,000

    £11000 - £50000 per annum: Recruitment Genius: This financial company offer ma...

    SThree: Recruitment Consultant

    competitive + incentives + uncapped comms: SThree: Did you know? 98% of our di...

    Day In a Page

    Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

    US betrayal of old ally brings limited reward

    Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
    VIPs gather for opening of second Suez Canal - but doubts linger over security

    'A gift from Egypt to the rest of the world'

    VIPs gather for opening of second Suez Canal - but is it really needed?
    Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

    Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

    Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
    The male menopause and intimations of mortality

    Aches, pains and an inkling of mortality

    So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
    Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

    'How can I possibly be on the list with these writers I have idolised?'

    Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
    Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

    Bettany Hughes interview

    The historian on how Socrates would have solved Greece's problems
    Art of the state: Pyongyang propaganda posters to be exhibited in China

    Art of the state

    Pyongyang propaganda posters to be exhibited in China
    Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

    Vegetarian food gets a makeover

    Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks
    The haunting of Shirley Jackson: Was the gothic author's life really as bleak as her fiction?

    The haunting of Shirley Jackson

    Was the gothic author's life really as bleak as her fiction?
    Bill Granger recipes: Heading off on holiday? Try out our chef's seaside-inspired dishes...

    Bill Granger's seaside-inspired recipes

    These dishes are so easy to make, our chef is almost embarrassed to call them recipes
    Ashes 2015: Tourists are limp, leaderless and distinctly UnAustralian

    Tourists are limp, leaderless and distinctly UnAustralian

    A woefully out-of-form Michael Clarke embodies his team's fragile Ashes campaign, says Michael Calvin
    Blairites be warned, this could be the moment Labour turns into Syriza

    Andrew Grice: Inside Westminster

    Blairites be warned, this could be the moment Labour turns into Syriza
    HMS Victory: The mystery of Britain's worst naval disaster is finally solved - 271 years later

    The mystery of Britain's worst naval disaster is finally solved - 271 years later

    Exclusive: David Keys reveals the research that finally explains why HMS Victory went down with the loss of 1,100 lives
    Survivors of the Nagasaki atomic bomb attack: Japan must not abandon its post-war pacifism

    'I saw people so injured you couldn't tell if they were dead or alive'

    Nagasaki survivors on why Japan must not abandon its post-war pacifism
    Jon Stewart: The voice of Democrats who felt Obama had failed to deliver on his 'Yes We Can' slogan, and the voter he tried hardest to keep onside

    The voter Obama tried hardest to keep onside

    Outgoing The Daily Show host, Jon Stewart, became the voice of Democrats who felt the President had failed to deliver on his ‘Yes We Can’ slogan. Tim Walker charts the ups and downs of their 10-year relationship on screen