Friend told by builder he needs 25 % deposit for new builds

frugalandsave

Hi,
i have a question for a friend who is interested in buying a new build. 
I personally advised against new builds, rather something a few years old. But thats up to him. He went to some show homes and spoke with the staff that showed him around. When speaking about financing, he has been told he needs a minimum of 25 % of deposit to purchase a new build. I personally dont think this is correct, as it shouldnt matter for the builder where the money comes from as long as its purchased for price X. 
Does the 25 % deposit needed for new builds sound correct to anyone?
Many thanks,
FS

withaspritz

Not true in our experience, we are in the process of buying off plan from a large national developer with 15% deposit (from equity of our sale), no HTB and 85% from a mortgage in principle.  However the seller can dictate terms if they are willing to lose any sub-25% business, so if they are happy to have your friend walk away then that's all he/she can do.

numbercruncher8

IIRC it's 25% for Nationwide, but that is for flats. 
Maybe these things aren't finished yet and the builder needs the deposit for liquidity?

davidmcn

Is there confusion here between "deposit" as in the equity being contributed versus the mortgage amount, and "deposit" as in the contractual deposit put down on exchange of contracts? I wouldn't in any circumstances be handing over a 25% contractual deposit, particularly if the builder will have their hands on it before completion!

OldMusicGuy

Yes, confusing language here. 10% is the usual deposit paid to the builder of a new build (in fact for the purchase of most houses). This is not the same as the "deposit" required by the mortgage lender. We are buying a new build and just paid a 10% deposit.

There are several guarantee agencies for new builds (like NHBC). They will protect the deposit against risk of the the builder going bust between exchange (when you hand over the deposit) and completion (when you own the property and pay the balance). They will typically only cover 10% of the purchase price of the property, so if you put down more than 10% you risk losing that if the builder goes bust between exchange and completion.

Crashy_Time

numbercruncher8 said:

IIRC it's 25% for Nationwide, but that is for flats. 
Maybe these things aren't finished yet and the builder needs the deposit for liquidity?

Major red flag.

Crashy_Time

frugalandsave said:

Hi,
i have a question for a friend who is interested in buying a new build. 
I personally advised against new builds, rather something a few years old. But thats up to him. He went to some show homes and spoke with the staff that showed him around. When speaking about financing, he has been told he needs a minimum of 25 % of deposit to purchase a new build. I personally dont think this is correct, as it shouldnt matter for the builder where the money comes from as long as its purchased for price X. 
Does the 25 % deposit needed for new builds sound correct to anyone?
Many thanks,
FS

The builder knows it probably won`t come from the bank or government (unless they are going to keep trying to throw money at daft borrowing schemes to keep people buying overpriced houses) any more, they are just hoping lot`s of cash rich and not too bright people will turn up at their site probably, IMO this is unlikely to be happening.