New builds: Are first time buyers aware of the risk?

Hornet572

Hi All,

I'm 27 living at home with my parents and looking at buying a property in the south east. I've looked at a number of new build property's and put down a deposit of £500 with the estate agent to hold the property.

I've had help from an IFA who's found that I'm eligible for a mortgage of £157,500. I have £30,000 in savings for a deposit (£3000 of it is saved in a help to buy ISA)

I will be using the equity loan from the government so will receive an extra 20% towards the property.

I decided on a new build 1 bedroom property and found one advertised for £229,500 I got the price down to £225,000 and agreed on it with the estate agent.|

Firstly, Nationwide wouldn't lend on this property due to the warranty. See below:

Nationwide Building Society
Advantage: There must be no more than 10 units in any continuous structure.

I felt a bit uneasy after hearing this, but I liked the property so I asked my IFA to find another lender.
Now when the survey was carried out by my alternative lender (halifax) the surveyor valued the property at £204,000

My IFA tried to appeal this and was denied, the surveyor stands by the value of £204,000 and won't change it.

The estate agent wants me to find a 3rd lender to get another survey done on the property but I am very cautious about this property now and feel it's too risky even if the 2nd surveyor values it nearer £225,000.

Now correct me if I'm wrong here but I got an interesting email from the estate agent. Which I believe to be blackmail and only works in their favour.

---

"If the second valuation supports the sale price and you decide not to proceed at that point you will need to cover the costs, if the property is down valued for the second time and we can’t reach an amicable arrangement then the developer will cover all of those cost."

"With regard to the payment this will be dealt with on completion and your solicitor will refer to this on your completion statement as this payment must remain transparent to the lender also. Once we have a new valuation we can amend the paperwork for the said lender before mortgage offer."

"Let me know once the application has been submitted and the new lender"

---

I'm just worried about buying this property and the value dropping massively and leaving me with negative equity. Then when it comes to the 5 year period trying to pay the lender and the government will cripple me financially.

Funnily enough after this email, they also said to me on the phone, if you want we can get our recommended IFA to get in contact with you and get a free valuation done at no extra cost.

So a biased valuation will be carried out on the property and I'll be lied to? No thanks.

I'm now looking at older property in the area that are not new builds as I don't trust new builds, it seems the estate agents have whacked an extra 20% on all house prices as they know it's easier for FTB to get a large sum of money together which consists of the below:-

Bank Loan \ Government Equity Loan \ Buyers own deposit

If I pull out of this deal now, I'll most likely lose around £1500. This consists of Solicitors fees for the property search and write up of exchange of contact. The IFA fees and the £500 deposit.

I'm hoping to at least get my £500 deposit back from the estate agent as I have been mis-sold a property. If I'm told I won't get this back, I'll be going to the ombudsman to argue this.

Cheers.

ACG

Why would you have solicitors fees if you do not have a mortgage offer?
You should only be commencing on the legal work once you have a mortgage offer for this exact reason.

Im not sure about the agents/developers fee. It seems a bit unfair as you have tried to get a Mortgage but what do the terms of the deposit say? Do you get it back if the property is downvalued? You could try another lender with a free valuation and see what it comes back at?

For the IFA - when is their fee payable? Ours is only payable on full offer of a Mortgage. If you have already paid them, can it be transferred over to a new application?

LandOfConfusion

Hornet572 wrote: »

I'm just worried about buying this property and the value dropping massively and leaving me with negative equity.

Hornet572 wrote: »

I don't trust new builds, it seems the estate agents have whacked an extra 20% on all house prices

From my point of view Help To Buy is yet another government scam to keep house prices high* so you're right to be concerned. The problem is there's been nothing to stop builders factoring this in and upping prices accordingly.

And from what I've read you'd be lucky to get that money back when it comes time to sell.

https://moneyweek.com/497534/help-to-buy-the-cap-is-going-to-hurt


*So far we've had removal of Schedule A taxation in the 60's, massive loosening of the regulations in the 80's (as a FTB you can now borrow much more than 3.5x earnings!!), removal of rent caps + introduction of tax incentives for BTL'ers in the early 90's, artificially low IR's in the 00's and now scams like this where you get what seems like a great deal until you try to move and see the new valuation...

AdrianC

Hornet572 wrote: »

Firstly, Nationwide wouldn't lend on this property due to the warranty. Their reason was that if there are more than 10 flats in a block they will refuse to lend.

As is their right. They don't have to lend to anybody for any particular property.

I felt a bit uneasy after hearing this, but I liked the property so I asked my IFA to find another lender.

Of course. There's plenty of others out there.

Now when the survey was carried out by my alternative lender (halifax) the surveyor valued the property at £204,000

My IFA tried to appeal this and was denied, the surveyor stands by the value of £204,000 and won't change it.

As his is right. His professional opinion is that it's worth £204k, no more, and he'd be wrong to be pressured into changing it.

The estate agent wants me to find a 3rd lender to get another survey done on the property

That would certainly be one option, yes. It's the only option if you want to continue.

but I am very cautious about this property now and feel it's too risky even if the 2nd surveyor values it nearer £225,000.

Fine. You can walk away.

Now correct me if I'm wrong here but I got an interesting email from the estate agent. Which I believe to be blackmail and only works in their favour.

---

"If the second valuation supports the sale price and you decide not to proceed at that point you will need to cover the costs, if the property is down valued for the second time and we can’t reach an amicable arrangement then the developer will cover all of those cost."

It's not blackmail. In fact, it seems more than fair as a compromise.
If you choose to walk away now, then of course you need to cover the costs incurred in your abortive purchase.
The developer are, if anything, being generous in saying that they'll cover the costs if you walk away after a second valuation agrees with the first. They certainly don't have to.

I'm just worried about buying this property and the value dropping massively

Don't buy a new-build, then.

and leaving me with negative equity.

Build up a larger deposit, then.

Then when it comes to the 5 year period trying to pay the lender and the government will cripple me financially.

Don't use HtB, then.

Look, it's very simple - you're trying to buy a £225k property with just £30k for deposit plus fees. That's damn near 90% LtV. As it happens, some of that loan is coming from the gov't instead of a bank... because you don't earn enough to qualify for the ~£200k mortgage that you'd need to buy it without HtB...

I'm hoping to at least get my £500 deposit back from the estate agent as I have been mis-sold a property.

No, you haven't. You haven't bought anything, let alone been "mis-sold"... One lender simply don't want to know about that property at all, regardless of the price, and the valuer for another thinks it's a bit overpriced. You've been told that if a second valuer agrees it's overpriced, then the developer will pay the costs you've incurred - but you don't want to even try, because you've got the jitters. That's absolutely your choice... but don't blame anybody else. You were quite happy to freely offer £225k for it. You could have walked away, and still can.

sal_III

Hornet572 wrote: »

Firstly, Nationwide wouldn't lend on this property due to the warranty. Their reason was that if there are more than 10 flats in a block they will refuse to lend.

So which one is it, warranty or number of flats? Curiously enough my mortgage with Nationwide is for a flat in a building of 30ish flats. Offer is from April 2018, completion September 2018, so their rules might have changed or are different for other areas.

Down-valuation, denied mortgage and/or price drops leading to negative equity are not unique to new builds, so not sure what is the lesson here. If anything the equity loan partially protects you from price drops, since you have to repay less money than you initially borrowed.

jonboy321

Better to lose a little money now than a lot in the long run. Most banks try to protect their money & by doing so will protect yours.

Most people know a new build has a premium built in (even more so now as it is easier to buy a new build with HTB) and you are buying one at what looks to be a market peak. I would think you would be better off buying an older property, and then using what you have saved as the premium in uping the spec slightly.

You'll also find it easier to negotiate with a private seller. Developers try desperately to not negotiate (instead throwing in extras) to keep the value up and stop subsequent purchasers negotiating when they see what other homes in the same development have sold for on Rightmove and Zoopla.

stator

I think you've proven that FTBs very often aren't aware of the risks or how to manage the buying process to reduce their risks.


I really don't understand why so many people get conned into paying a cash deposit to hold a property when there are so many second hand properties on the market and you don't have to pay anything.


If you've decided that the property price is too high, then you need to lower your offer and be prepared to walk away straight away when the developer refuses your offer (they might accept it if they are having trouble selling the rest of their units or have quarterly targets to meet quickly), the conveyancing costs might not be as high as you think, since you don't have a mortgage offer yet the conveyancer might not have done much. But there is no point messing about, if you've decided it's too much money then lower your offer and start looking for another place to buy.

AdrianC

stator wrote: »

I really don't understand why so many people get conned into paying a cash deposit to hold a property when there are so many second hand properties on the market and you don't have to pay anything.

Simple. It's two-fold...


1 - HtB.
2 - Shiny-shiny-never-used.


Both of those are also the PRECISE reason why there's a "new-build-premium".

comeandgo

In my opinion help to buy flats can only go one way in valuation and that is down. Save a bit more or buy something cheaper.

Hornet572

sal_III wrote: »

So which one is it, warranty or number of flats? Curiously enough my mortgage with Nationwide is for a flat in a building of 30ish flats. Offer is from April 2018, completion September 2018, so their rules might have changed or are different for other areas.

Down-valuation, denied mortgage and/or price drops leading to negative equity are not unique to new builds, so not sure what is the lesson here. If anything the equity loan partially protects you from price drops, since you have to repay less money than you initially borrowed.

I didn't explain it very clearly my bad. Please see below.

Nationwide Building Society
Advantage: There must be no more than 10 units in any continuous structure.

Hornet572

ACG wrote: »

Why would you have solicitors fees if you do not have a mortgage offer?
You should only be commencing on the legal work once you have a mortgage offer for this exact reason.

Im not sure about the agents/developers fee. It seems a bit unfair as you have tried to get a Mortgage but what do the terms of the deposit say? Do you get it back if the property is downvalued? You could try another lender with a free valuation and see what it comes back at?

For the IFA - when is their fee payable? Ours is only payable on full offer of a Mortgage. If you have already paid them, can it be transferred over to a new application?

I've had the mortgage deed through from the solicitor, he's also completed a property search,

I had a mortgage offer from Halifax before the valuation. Once it was valued at 204k by the surveyor, the mortgage is now void.

Yeah I may contact another lender to enquire, do you know any lenders that offer free valuations?

My IFA took the fee from my account when the mortgage offer was given by Halifax. I'll ask if this can be transferred when looking at another property, hopefully he'll say yes.