new build incentives

desire4prosperiti

I've seen an incentive on a new development where the builder offers £700 per month towards your mortgage for 2 years. What are the downsides of such a good offer?

Also, I remember reading somewhere about companies that bulk buy new flats off plan and then re-sell them at a discount. Anyone know where I can get information on this?

Thanks

Pal

£700 = £16800 over 2 years. So they are effectively overcharging you by that amount when you buy the house in the first place, then paying it back to you over 2 years. That is the downside. There will also be LOTS of terms and conditions designed to limit their payments to you.

Better to ask for a £16,800 discount off the asking price up front.

MarkyMarkD

Yes, but Pal ...

(a) if they can persuade a valuer it's worth the full price, the customer gets a subsidised mortgage (read lots of money to spend on other stuff);
(b) if they gave a discount instead, the customer would still have to pay the full mortgage on that reduced loan, which would be far more than the full mortgage on x + £16,800 LESS £700 per month.

I agree that essentially the properties are over-priced, and this is a bit of a scam, but it does work for the customer precisely because valuers will fall for this sort of thing!

The other thing is that, now that house prices are all available online, valuers will check comparative prices. As long as the developer always uses this sort of rebate, they keep the disclosed prices up and these become the accepted basis for valuing on future sales ... it's a circle of over-valuation which benefits the developers and the buyers don't mind either.

desire4prosperiti

Thanks both!

Million dollar question - would either of you bother with such a deal?

theGrinch

it depends on the individual and position of developer, but as a general rule do your market research. if you believe the deal is bona fide and the flat is to your tastes then consider it.

4/5 deals are overpriced, but 1/5 may be good.

there are advantages to new builds with less needed up front, but you tend to pay for it in the overall price.

desire4prosperiti

thanks everyone. now to get on the phone and online...

dippy

MarkyMarkD wrote:

(b) if they gave a discount instead, the customer would still have to pay the full mortgage on that reduced loan, which would be far more than the full mortgage on x + £16,800 LESS £700 per month.

The repayments may be more in the first 2 years but over the length of the mortgage, it works out cheaper getting the discount to reduce the debt outright than to spend most of it on paying interest for the mortgage (~70% of the repayments in the first few years AFAIR)

MarkyMarkD

Of course, dippy, £16,800 in a lump sum is worth more than £16,800 spread over a few years. But for most people it's the immediately cashflow benefit after they buy their first home that matters.