Advice - New Build Purchase

riceraider

Hi,

We are currently in the process of buying a new build, and still negotiating with the builder.
The property is the showhome listed at 420k that completed around mar/apr 2013 and was released around Sept 2013. It's towards the end of the development with 3 plots remaining. The previous list price for this particular house was 405k, but obviously don't know how much folk paid with relevant discounts etc.

The standard offer without haggling comes with PX, 3% Stamp duty, usual carpet/flooring, blinds, lighting, garden landscape, upgraded bathroom units etc and finally 10k discount.

We had our property valued with 4 EA giving around 155-160k whilst one came back with 140-145k. The builder had initially offered 140k PX and now 150k, but we are trying to negotiate towards 155k but the best so far is an extra £2.5k for which they would take off the price of their house.

So in summary, PX £150k and a purchase price of £407,500 (with £12500 discount) with stamp duty paid (I assume 3% on the purchase price and not the list I.e £12225).

I would greatly appreciate some valued advice in the following


1) Is there is now a requirement for lenders to know exactly the incentives/discounts offered, with some total max limit of 5% on the original list price I.e 420k - £21k, otherwise mortgage will not be accepted? Can someone clarify this one, as I assume any price discounts (£12500) don't fall under this?

2) For our situation will we expect that the lenders will deduct the total incentives/discount (£12225 SD + £12500 discount) from the final property valuation to determine suitable loan amounts?

3) Can I also get some views on lender valuations for new builds. Is it frequently the case that we expect to see lenders coming back with a lower valuation in compared to the builders list price?
In such situations I think renegotiating at min to the new valued price along with previous discounts (£12500) and incentives. Just wondered if anyone could offer views and approach on this?

4) Just looking for some thoughts on the discount/deal we've been offered? I'm not entirely sure how reasonable this is. The builders are not really moving on price but wonder if its because of the PX. I was previously expecting larger discounts with this being towards the end of development and this month being their interim financial year.

Thanks,
Rice

Mobeer

2) Forget the concept of a discount and think about a sale price. For example if the house is listed as 420,000 but you agree a sale price of 407,500, then the price is simply 407,500. This makes subsequent calculations much easier.

Stamp duty is irrelevant to mortgage applications.

The mortgage company will make their own valuation, regardless of how you want to record the numbers. They will probably want to see that their valuation at least matches yours (407,500). If not, then the calculate the %LTV using their valuation.

3) I've only had 2 lender valuations on new builds. Both have simply confirmed that the property is worth the sale price.

4) How reasonable the deal is depends a lot upon how sales are going on the site. Given the builder has put the list price up then this suggests the properties are selling easily, in which case any haggling will be difficult. You are also arguing for a seemingly high part exchange value, which will be making the builder less likely to negotiate on the sale price (because the builder is getting the difference in these).

riceraider

Mobeer wrote: »

2) Forget the concept of a discount and think about a sale price. For example if the house is listed as 420,000 but you agree a sale price of 407,500, then the price is simply 407,500. This makes subsequent calculations much easier.

Stamp duty is irrelevant to mortgage applications.

The mortgage company will make their own valuation, regardless of how you want to record the numbers. They will probably want to see that their valuation at least matches yours (407,500). If not, then the calculate the %LTV using their valuation.

3) I've only had 2 lender valuations on new builds. Both have simply confirmed that the property is worth the sale price.

4) How reasonable the deal is depends a lot upon how sales are going on the site. Given the builder has put the list price up then this suggests the properties are selling easily, in which case any haggling will be difficult. You are also arguing for a seemingly high part exchange value, which will be making the builder less likely to negotiate on the sale price (because the builder is getting the difference in these).

Mobeer,
Thanks for your feedback!

Regarding (2), you mention that stamp duty is irrelevant in the mortgage application. However, what is the story on a so-called Council of Mortgage Lender Disclosure Incentives Form; suspect its something to be completed by the builder. Previous posts i read suggest that all incentives / discounts etc are to be declared on this i.e. Stamp Duty paid by builder. It seems to suggest that lenders use this information in someway to make the overall property valuation more transparent when all discounts/incentives are clearly noted. However, i'm not sure what actions the lenders will take on this information which I'd like to get some further insight upon i.e. once they get their valuation on the property, do they then deduct all financial benefits from this valuation to derive a final valuation, for which LTV% is then based on.
i.e. agreed price £407,500 and say valuation comes back with the same. Then do they deduct all financial benefits from this; In this scenario only the £12,225 stamp duty paid by builder and all other non financial benefits such as carpets, light, landscape are ignored. This giving a final valuation of £395,275 (407,500-12,225) which is the figure used to calculate LTV%.
Is that how it would generally work? Or am I totally missing the point?



Anyone got further suggestions on my queries please (1,2,3 or 4)?

Thanks,
Rice.

ethank

1 - Your lender will want to know all of the incentives.

2 - Some lenders may deduct cash incentives from your loan amount. There are some lenders that do not deduct stamp duty contributions.

3 - I have had two valuations and both came back on valuation. I used the recommended mortgage advisor for my development site. In their office they had a poster detailing all of the sites, all of the lenders, and who was offering the right valuations - whilst some people say you should not go with recommended broker - I found the recommended broker's knowledge invaluable.

4 - It could mean anything, although I think they add some money on to each house as they get through each phase. I've seen the same Houses on my site (currently phase 3 of 7) which were £220k and are now £240k!. Best to look for a similar house on Zoopla.

To note - the fact that you are going part exchange, whilst easy for you, means that the seller is less likely to negotiate with you.

riceraider

In terms of the deal, there is a 10k discount and an additional 2.5k discount which we negotiated so far (12.5k total).
I assume such cash discounts that we get off list price is not regarded as "cash incentives" rite?
And the same applies with stamp duty being paid.

I assume when we talk about "cash incentives", this refers solely as forms of cash back you recieve after completion?


When folk say don't go with recommended brokers....what's the general reason?

kingstreet

Price reductions/discounts which see a lower contract price are not incentives.

Cash incentives are builder gifted deposit, stamp duty payment, legal fees, broker fees. Some lenders deduct them from the valuation and lend based on the lower figure.

Your overall deal is specific to you, the builder, the site, your home and the time of year. It's impossible to rate it with no frame of reference. If you are happy with it, that should be good enough. If not, talk to other builders and do more research to provide more comparables.

riceraider

kingstreet wrote: »

Price reductions/discounts which see a lower contract price are not incentives.

Cash incentives are builder gifted deposit, stamp duty payment, legal fees, broker fees. Some lenders deduct them from the valuation and lend based on the lower figure.

Your overall deal is specific to you, the builder, the site, your home and the time of year. It's impossible to rate it with no frame of reference. If you are happy with it, that should be good enough. If not, talk to other builders and do more research to provide more comparables.

Thanks for the confirmation!

Btw, if lenders do deduct incentives from their valuation, is that made transparent to you? In order for you to assess the need to renegotiate?
I.e
With our agreed price of £407500 and the only possible deduction being the stamp duty £12225...I would expect not to accept a lower valuation figure than £395275 (assuming lenders have declared that this includes a stamp duty deduction).
On the other hand if there was no declared deductions in incentives and the valuation figure was lower than the agreed price of £407500, I would need to renegotiate on price.