New build cash back incentives - confusion

pjw1592

Hello all!

I'm in the process of buying my first home and the builder offered a '£5,000 cash back incentive' upon completion, which includes £2,000 towards legal fees and £3,000 cash back. When being shown around the showhome, I was led to believe that this money would be transferred to my solicitor upon completion, so that she could sort out the legal fees, and any remaining money would then be sent back to me.

Today, I received a draft leasehold document for the property, which stated "The Landlord has received from the Tenant for the Property the sum of £195000 (less financial incentives totalling £5,000"). This seems to suggest that the £5,000 incentive is actually not cash back, but is instead being paid towards the cost of the property. My solicitor has said that this 'cash back' will be used as an allowance so that less is paid to the seller on completion. She also says that she thinks it will be deducted from my final bill/deposit/legal fees, so that less is due from me on completion. In a nutshell, I'm a bit lost!

Is anyone able to confirm how these cash back incentives actually work? One of the reasons I decided to go for this property is because I was led to believe that I would have at least £3,000 transferred to me upon completion, which I planned to use to buy furniture etc., so it would be a little frustrating if this weren't to be the case!

Many thanks in advance!

lincroft1710

Your solicitor is the one best placed to give you advice and if you don't understand what she is saying ask her to explain it in simpler terms. If she doesn't understand it herself, she should clarify the matter with the builder or their solicitor.

If she does not get this clarified, get yourself a new solicitor!

jon81uk

Ask the solicitor. The money is usually transferred to them and they work it out in the final completion statement.
For example if the house is £200,000 and you pay 10% deposit upfront.
Completion statement might be
House price -180,000
mortgage +180,000
solicitor fee -1500
stamp duty 0
incentive from builder +5000
money owed to purchaser £3500

eddddy

If I'm reading this right ....

• You seem to be saying "I want to pay £195k and then get £5k back"
• The developer and solicitor seem to be saying "Just pay £190k"

Why do you think there is a difference?

In case it's relevant, in both cases your mortgage lender will treat the purchase price as £190k.

So whichever way you look at it, if you're getting, say, a 90% LTV mortgage, the most you can borrow is 90% of £190k = £171k

eddddy

jon81uk said:

Ask the solicitor. The money is usually transferred to them and they work it out in the final completion statement.
For example if the house is £200,000 and you pay 10% deposit upfront.
Completion statement might be
House price -180,000
mortgage +180,000
solicitor fee -1500
stamp duty 0
incentive from builder +5000
money owed to purchaser £3500

If the house price is £200k with a £5k cashback - the mortgage lender will consider the purchase price to be £195k.

So a 10% deposit would be £19.5k and a 90% mortgage would be £175.5k

jon81uk

eddddy said:

jon81uk said:

Ask the solicitor. The money is usually transferred to them and they work it out in the final completion statement.
For example if the house is £200,000 and you pay 10% deposit upfront.
Completion statement might be
House price -180,000
mortgage +180,000
solicitor fee -1500
stamp duty 0
incentive from builder +5000
money owed to purchaser £3500

If the house price is £200k with a £5k cashback - the mortgage lender will consider the purchase price to be £195k.

So a 10% deposit would be £19.5k and a 90% mortgage would be £175.5k

I’m getting an incentive from the builder and the mortgage lender has not reduced the purchase price, just listed that we have an incentive that’s less than 5% of the purchase price.

Thrugelmir

Can you explain how you are proposing to finance the purchase. 

pjw1592

eddddy said:

If I'm reading this right ....

• You seem to be saying "I want to pay £195k and then get £5k back"
• The developer and solicitor seem to be saying "Just pay £190k"

Why do you think there is a difference?

In case it's relevant, in both cases your mortgage lender will treat the purchase price as £190k.

So whichever way you look at it, if you're getting, say, a 90% LTV mortgage, the most you can borrow is 90% of £190k = £171k

Hi eddddy,

Thank you for your reply.

I guess the reason I'm confused is because the cash back incentive was advertised as £2,000 towards legal fees, and £3,000 cash back, to be used in any way I like. Not once did it stipulate that it was essentially a £5,000 contribution towards the cost of the property. Indeed, my mortgage broker has applied for a mortgage for a property valued at £195k, rather than £190k.

My intention had been to pay a 5% deposit in total, along with a 20% Help to Buy Equity Loan. I was then expecting to be able to use the cash back towards the legal fees I have accrued (as advertised), and any left over money was going towards buying furniture etc. Are you essentially saying this wouldn't be possible?

Thanks again!

pjw1592

Thrugelmir said:

Can you explain how you are proposing to finance the purchase. 

Hi Thrugelmir,

I'm financing the purchase as follows:

- 5% cash deposit from Help to Buy ISA (=£9,750)
- 20% Help to Buy Equity Loan (=£39,000)
- 75% mortgage (=£146,250)

My mortgage broker has applied for a mortgage for the above amount, assuming (like me) that the £5,000 cash back incentive from the builder will be used towards legal fees and any remaining money coming back to me. He seems very confused by this, too.

pjw1592

jon81uk said:

eddddy said:

jon81uk said:

Ask the solicitor. The money is usually transferred to them and they work it out in the final completion statement.
For example if the house is £200,000 and you pay 10% deposit upfront.
Completion statement might be
House price -180,000
mortgage +180,000
solicitor fee -1500
stamp duty 0
incentive from builder +5000
money owed to purchaser £3500

If the house price is £200k with a £5k cashback - the mortgage lender will consider the purchase price to be £195k.

So a 10% deposit would be £19.5k and a 90% mortgage would be £175.5k

I’m getting an incentive from the builder and the mortgage lender has not reduced the purchase price, just listed that we have an incentive that’s less than 5% of the purchase price.

This is pretty much the line that my mortgage broker has been going down as I have queried this with him. Fingers crossed!

jon81uk

pjw1592 said:

eddddy said:

If I'm reading this right ....

• You seem to be saying "I want to pay £195k and then get £5k back"
• The developer and solicitor seem to be saying "Just pay £190k"

Why do you think there is a difference?

In case it's relevant, in both cases your mortgage lender will treat the purchase price as £190k.

So whichever way you look at it, if you're getting, say, a 90% LTV mortgage, the most you can borrow is 90% of £190k = £171k

Hi eddddy,

Thank you for your reply.

I guess the reason I'm confused is because the cash back incentive was advertised as £2,000 towards legal fees, and £3,000 cash back, to be used in any way I like. Not once did it stipulate that it was essentially a £5,000 contribution towards the cost of the property. Indeed, my mortgage broker has applied for a mortgage for a property valued at £195k, rather than £190k.

My intention had been to pay a 5% deposit in total, along with a 20% Help to Buy Equity Loan. I was then expecting to be able to use the cash back towards the legal fees I have accrued (as advertised), and any left over money was going towards buying furniture etc. Are you essentially saying this wouldn't be possible?

Thanks again!

That’s almost exactly the same as we are doing. 

5% deposit, 20% help to buy loan and 75% mortgage. 
Developer Is giving £1000 towards legal fees and 3% cashback (your mortgage paid for a year is the offer). Originally we would have off-set most of the incentive against the stamp duty, but now that’s zero we are now expecting an even bigger transfer from the solicitor. 

All the paperwork on the mortgage and the Contracts has the original full purchase price, incentives are separately listed.