Warning to those getting a mortgage for new build with first direct

donz23

We have just been through a mortgage application with first direct and wanted to advise others what we were only told by them the day before we were due to exchange(!!!!)

If you are buying a new build (as we are) and if the developer is paying the stamp duty (as they are in our case) then FD see this as an incentive (fine) and therefore see it as a 'gift'. Therefore they then told us this 'gift' amount will be taken off the purchase price! So instead of recognising the purchase price at (for example) £225k they now see it as £223k (225k minus the stamp duty 'gift')

This did not effect the amount we could borrow but what this did effect was our LTV as it went up (from 85% to 85.7%). This meant we were no longer on the lower 85% interest rate bracket but now on the higher interest rate unless we put more deposit in to bring our LTV back down to 85%!

So if you have applied and are right on the limit for your LTV (as we were) and you are buying a new build with stamp duty paid bear this in mind.

kingstreet

This is common with many lenders, as incentives, such as stamp duty can be deducted from the valuation when the surveyor gets the CML form from the builder.

Nelly321

I may be a bit naive but surely the SDLT is not part of the property price?

Unless the original house price included the stamp duty ....

onlyroz

I don't see how it could possibly be right for the stamp duty to be included in the purchase price. Otherwise this would inflate the prices recorded at the land registry.

donz23

onlyroz wrote: »

I don't see how it could possibly be right for the stamp duty to be included in the purchase price. Otherwise this would inflate the prices recorded at the land registry.

We don't understand it either and my solicitor and her collegues had not come across it before. My solicitor even phoned FD herself to query it but didn't get anywhere with them either.

mrginge

onlyroz wrote: »

I don't see how it could possibly be right for the stamp duty to be included in the purchase price. Otherwise this would inflate the prices recorded at the land registry.

Its not included in the purchase price. The developer is effectively giving some cashback (which in this case is going to pay the stamp duty).

The mortgage lender is correctly discounting the cashback for Ltv calcs.

Its no different to me selling you my house for 100k, you getting a 90% mortgage, but then me giving you 10k cashback. The end result in this scenario is that you have a 100% mortgage since you only paid net 90k

onlyroz

mrginge wrote: »

The mortgage lender is correctly discounting the cashback for Ltv calcs.

Well yes, that's what I'm saying. I'm surprised that the OP ever thought it would be considered in the loan-to-value calculations.

Senior_Paper_Monitor

Its a 'consideration' in the same deal i.e I'll buy your house if you do X for me.

It is therefore declarable under CML (Council of Mortgage Lenders) guidelines and most mortgage lenders don't like it.

Thrugelmir

onlyroz wrote: »

Otherwise this would inflate the prices recorded at the land registry.

In the past that was the whole aim of builders incentives. As it disguised the true cash consideration.

donz23

onlyroz wrote: »

Well yes, that's what I'm saying. I'm surprised that the OP ever thought it would be considered in the loan-to-value calculations.

We were not aware it would affect our LTV. Maybe its because we are FTBs and dont know the mortgage process but we didn't know it made a difference. I haven't posted to say whether its right or wrong or whether i should have known or not known. No one warned us about it and i have not read about it anywhere so I have posted my experience as advice to anyone else who may not be aware.