Home exchange offer reduced with gifted contribution added

kernow04

Hi, we live in South West England and are looking at reserving a new build property. As part of the deal, the developer has agreed to buy our current property as a home exchange scheme.

They have called today to say it’ll look better on the deal sheet if they can knock £20,000 off their original home exchange offer, then gift us £20,000 as a deposit contribution. Financially it doesn’t seem like it will make a difference, as the property will cost us the same either way and we won’t need to pay anything extra, I just wanted to ask if there’s a reason why they would do it this way?

My thoughts were that it might look better on their profit margins, buying for £20k less will give them more profit when they sell our house on, and then the £20k contribution to our new house will come out of a different ‘pot.’

Is there any negative or risk to us doing it this way? Taking off £20k doesn’t put us in to negative equity, and we’ll be putting the same deposit on the new house. It just seems strange/unexpected to have it structured this way.

Thanks.

Albermarle

One possible issue comes to mind is that your solicitor will want to know where the £20K has appeared from.

Otherwise you are probably right, it will be some sort of smoke and mirrors accounting exercise at their end.

kernow04

https://forums.moneysavingexpert.com/discussion/comment/81858505#Comment_81858505

We’re not at the reservation point yet so haven’t instructed any solicitors or conveyancers, but I thought that this probably isn’t that uncommon with new build developers so the solicitors wouldn’t be surprised by it?

caprikid1

Do they pay stamp duty on the purchase ? Bit of a saving

kernow04

https://forums.moneysavingexpert.com/discussion/comment/81858574#Comment_81858574

That’s a possibility, I guess. Good point, it’s something I didn’t think about. I haven’t discussed it with them and have no idea on stamp duty laws for housing development companies. It seems a pretty common scheme offered around the country with new builds though.

silvercar

https://forums.moneysavingexpert.com/discussion/comment/81858574#Comment_81858574

I don’t think they do. They just hold it as agents and then offload it.

saajan_12

I expect it would be something to do with limits and targets. Eg if they weren't allowed to pay more than £x for a part ex or can't exceed y% on a part ex relative to the new build being sold, or they've found a buyer for your property offering less and they can't look like they're selling it at a loss, while they've exceeded their target on the new build sale.

Paying SDLT on the part ex at all would be prohibitively expensive - as a company they're always paying the 5% additional rate, on top of normal SDLT, this would be very hard to recover.

SDLT_Geek

https://forums.moneysavingexpert.com/discussion/comment/81869763#Comment_81869763

A developer would not normally pay SDLT on the acquisition by part exchange of a property taken from someone buying a new build property for them. There is a tailor made SDLT relief for this very circumstance to help property market liquidity: https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm21020

I would not expect the tweak to the structure proposed to make any difference to the SDLT position of the buyer; SDLT will still be due on the full market value of the property bought.

EssexHebridean

Are you going to be taking a mortgage for the new property, or porting an existing one? If so, your lender will have to approve the gifted deposit and your solicitor may charge you a small extra fee for dealing with this.

saajan_12

https://forums.moneysavingexpert.com/discussion/comment/81870971#Comment_81870971

Thanks, I didn't recall the detail of the exemption but essentially agreeing, that the developer woudln't be paying SDLT so that can't be the driver. Without such an exemption it would be company rates which would be prohibitive.

SarahB16

Not all developers offer part exchange so if I were in your shoes I'd be very grateful that your developer does offer this. What they are proposing does not negatively impact on you but appears to help the developer (for a variety of reasons that I can think of but none that negatively impact on you).

No reason to not accept their offer however if you did wish to use this as a potential bargaining tool (but go gently as the developer seems to be acting in a very fair manner in my opinion) is to enquire what your kitchen and bathroom options are. There may be some optional extras that they throw in for free as you have been so accommodating with them.

Keep it nice and friendly as you just never what they may be persuaded to throw in for free. When you speak to the developer make a note of the name of the people you talk to as it may be handy to quote their name when you are selecting your kitchen and bathroom options from the developer especially if you are asking for something that doesn't come as standard.