Developer Incentive Limit Mortgage Criteria for New Build

chiocken

Hello,

I've reserved a new build property after being wooed by some very attractive developer incentives. They are paying for LBTT and contributing £15,000 towards the deposit. This amounts to approximately 7% of the list price.

However, I've only just discovered that many (all?) lenders have a 5% limit criteria on developer contributions. I spoke to Halifax, who said that the limit is at the discretion of the valuer.

I'm just looking for some advice on how to proceed. Is it very likely that the valuer will enforce the limit? What are his criteria for doing so?

Does the limit exist so that developers can't over-inflate the list price to fund their 'generous' contributions?

It may be worth noting that the price has fallen considerably since the house was first made available. The developer previously told me that they wouldn't reduce the list price any more because it was now "pretty keen".

Basically, is there any hope that the 7% contribution will be allowed?

dunstonh

The problem with most new build inducements is that they are just added back onto the sale price. So, you think you are getting £x incentive but actually, the property is higher in price by £x to cover it.

This is on top of the fact that new builds tend to lose money the minute you buy it.

Incentives were a high fraud area prior to the credit crunch which left many in negative equity. So, now it has been tightened up.

Is it very likely that the valuer will enforce the limit? What are his criteria for doing so?

The valuer will value the property. Pretty good chance it will be less than the sale price if the house is in a stagnant area or the inducements are significantly impacting on the house price.

ACG

I do not do many new builds, but 5% is quite common.
There may be lenders who allow more, but then you need to weigh that up against the costs you will be paying for a lenient lender.

I have had lenders alter the incentives to be 5% cash value and the rest were white goods/carpet which was then allowed.

But I doubt I am the best broker on here to answer your question. A member called Kingstreet is the man on new builds.

chiocken

dunstonh wrote: »

The valuer will value the property. Pretty good chance it will be less than the sale price if the house is in a stagnant area or the inducements are significantly impacting on the house price.

The area is quite desirable and I think the developer is one of the more reputable (Dandara). The price has dropped quite a lot because it's the last house on the plot.

In what was do the incentives impact on the house price? Just by artificially inflating it by the same amount?

chiocken

ACG wrote: »

I do not do many new builds, but 5% is quite common.
There may be lenders who allow more, but then you need to weigh that up against the costs you will be paying for a lenient lender.

I have had lenders alter the incentives to be 5% cash value and the rest were white goods/carpet which was then allowed.

But I doubt I am the best broker on here to answer your question. A member called Kingstreet is the man on new builds.

Any tips on how to find such lenders? Their criteria for new builds doesn't seem to be readily available (or I'm looking in the wrong places).

All white goods and flooring are already included. I'm not sure how else they could give the remaining incentives. Cash wouldn't hurt!

kingstreet

You will not get builder cash incentives of more than 5% accepted by any lender.

5% cash, with non-cash such as white good, kitchen/bathroom upgrades, tiling, flooring etc would work.

chiocken

kingstreet wrote: »

You will not get builder cash incentives of more than 5% accepted by any lender.

5% cash, with non-cash such as white good, kitchen/bathroom upgrades, tiling, flooring etc would work.

Even if the property value is found to match the list price?

kingstreet

It's 5% of the agreed purchase price or valuation, whichever is the lower.