Legal Fess paid classed as Cash Incentive?

Mukk2k3

Myself and My partner are half way through our mortgage application but we had a call from the mortgage lender and they explained that the maximum incentives they can take on new build properties is 5% of the total purchase price. Any incentives over the 5% will be deducted from the purchase price and the LTV ratio calculated on the lower amount.

The builder is currently giving us a 5% gifted deposit on the house, therefore hence no more incentives allowed.

Although the developer is also paying for our legal fees of £750 who are independent of the house company and is not included on in the total purchase price but they will have to put on the contract that they are paying our legal fees.

Do you think this will be included as an incentive by the building society? If so we will effectively have to pay these ourselves.

Any help would be appreciated.

harvey115

I am also in similar situation in my case the builder is paying:
- £1,000 towards legal fees
- Flooring - something extra agreed as an offer
- Stamp Duty

My Mortgage provider is happy with this since everything except the flooring influences the house.

Builder have to enclose full offer details to the lender/valuer. I think you should be fine with the legal fees incentive as it is separately considered, similar to any stamp duty incentive. Having said this some lenders are flexible and some aren't. Your LTV ratio 95% also adds further level of caution and complexity to the mortgage deal.

The best thing to do in these circumstances is to be transparent with your lender when applying. You should have mentioned all these perks to the lender on application. If you have gone through a broker, you should have told your broker about it s well.

kingstreet

For guidance, here's the Halifax stance;-

Builder cash incentives include but are not limited to deposit contributions, cash-backs, contribution to legal fees/stamp duty, mortgage subsidies.

Builder cash incentives will typically be acceptable provided the value of these does not exceed 5% of the lower of purchase price/valuation. Cash incentives in excess of this amount may result in a reduction in the maximum loan available. All builder cash incentives must be declared at the point of sale.

The operative word appears to be "may" result in a reduction. I would expect no alteration, unless a very picky underwriter gets the case.

As long as the lender is aware of the incentives and the surveyor correctly listed them on the CML form he's required to complete for newbuilds it should be okay.

Varies from lender to lender though. See what comes through on the offer.

Mukk2k3

Hi Guys,

Thanks for the posts. Well included in the price of the property is carpets/flooring, blinds throughout and turf. However these are all standard fittings with the house as confirmed by the builder.

I don't know whether to inform the lender of the legal fees or just wait until they speak to the solicitor valuer and then see what happens. Like you say it does vary with the lender so I am just hoping they don't accept it as a cash gift.

harvey115

There are usually two ways Lenders usually find out about the incentives.

- Valuer
- Solicitor

If your survey has been done on the property for mortgage then you might have received a customer copy of the survey. Usually the surveyor details this part as well.

StuC75

Mukk2k3 wrote: »

The builder is currently giving us a 5% gifted deposit on the house, therefore hence no more incentives allowed.

Is it just me that thinks this isnt all its cracked to be... akin to DFS offering half price sofa.. In that where does the 5% deposit actually go,, so artifically increasing the selling price... Bit like quantitative easing I suppose..

Mukk2k3

StuC75

I see what you mean. Yes it artifically increases the price but doesn't bother me as it gives me and my partner a 15% deposit meaning a more beneficial interest rate - ultimately bringing down our monthly payments and hence paying more capital instead of interest!

harvey115

It is exactly the way it is.

Basically the developers put a price on their development and the management agrees. When selling the houses the developers have to meet some quota and to do so they are able to offer some incentives to seal the deal.

Thrugelmir

Mukk2k3 wrote: »

Well included in the price of the property is carpets/flooring, blinds throughout and turf. However these are all standard fittings with the house as confirmed by the builder.

They will discounted in arriving at the value of the property. As its costing the developer £'s to supply and fit.

harvey115

Actually this is not so much different then buying an old house.

When you buy an old house you would expect the house is sold with its flooring, garden, kitchen etc. Why should the new build be any different, although everything is new + you get a couple of utility appliances i.e. washing machine etc.

I see that everything is the same but just new and 'may' reduce in price when its a little old, but hopefully by then other house prices may rise.

Mukk2k3

Just spoke to mortgage lender and was completey honest with them so that we are not hiding anything and they will only find it out later down the line which could delay the whole process.

Explained that there are carpets/flooring, turf and blinds throughout and that they are standard and were already in the property when we went to view.

They said that's fine as they are standard fittings and the house price has not been inflated to include these as you have not asked for them.

Also as the legal fees are independent of the house price then this also fine as they have not been included as an extra incentive which has inflated the house price to cover these costs.

So hopefully completion can be done in about 3 weeks time