Builders construct offers to lure in potential buyers

Last week, some of the UK's biggest builders, including Barratt and Redrow, warned that a lack of mortgage availability continued to hinder any housing market recovery. Consequently, builders have had to find new ways of stimulating business on new build properties, noted David Rolleston, a mortgage broker at Mortgage Advice Brokerage in Glasgow.

"Most lenders now require at least a 25 per cent deposit for a new-build flat and considering that builders went crazy building these in the last five years many have large amounts of flats on their books to offload," said Rolleston. "They need to sell them to get some cash back on to the balance sheets."

There are few signs of lenders easing their lending criteria and the availability of funding on new-builds in particular is restricted to 75 per cent loan-to-value or below. As a result, most builders are targeting their incentives at existing homeowners rather than first-time buyers facing an uphill battle to secure mortgage lending in the first place.

"The most common incentives are cashback offers and part furnished with carpets and white goods," said Rolleston. "The more recent offers are shared equity, where the builder still maintains an equity stake in the property."

The key for buyers is to treat incentives objectively and avoid being tempted into deals not otherwise appropriate to your needs. Consider the overall cost once the incentives are factored in and make sure you're still getting a good deal. Where the incentive affects the amount of deposit put down, the relevant mortgage lender should be informed.

Here are the some of the main incentives currently offered by Scotland's biggest builders.

Part exchange

Perhaps the most widely promoted initiative – and apparently facilitating the bulk of sales at some housebuilders – part exchange is where the company takes on a buyer's existing property to allow them to move to their new one.

Among the housebuilders offering some buyers a part exchange are Cala, Gladedale and Stewart Milne. For instance, under the Stewart Milne plan, the builder buys the customer's existing property at an agreed market value and manages the exchange process from the independent valuation to preparing contracts and liaising with lawyers.

Cala offers a similar arrangement, which it claimed is particularly popular. "Done in the right way, part exchange can save money, time and stress and keep people moving up the property ladder," commented Sarah Stanger, Cala's sales and marketing director.

But caveats lurk, as ever. For example, the agreed value will typically be short of the market value of a property, while the value of the existing home usually needs to be at least 20 per cent below that of the new one.

And only homes that meet the housebuilder's criteria will be accepted, said Scott Brown, head of estate agency at Warners.

He says: "You can negotiate a better deal with a developer if your criteria fits the bill, such as being flexible on your entry date."

Assured sale

This is a part exchange with a twist, in that the builder buys the customer's existing property at an agreed price only if a sale hasn't been secured by the completion date for the new home.

Offered by builders including Stewart Milne, this is designed to give buyers a safety net and remove some of the uncertainty of selling (see case study). Gladedale's Safety Net Part Exchange is similar, allowing buyers to accept a higher offer than the one made by Gladedale for their property. If it remains unsold six weeks before they move into their new home, the builder will purchase the property at the pre-agreed price.

Shared equity

Some builders, including Mactaggart & Mickel, Miller Homes and Gladedale, are targeting first-time buyers with schemes allowing them to buy their first property at 75 or 80 per cent of the full price, with the balance repaid after a certain period or when the home is sold on. The idea is to allow borrowers to put down a smaller deposit and secure a more competitive mortgage deal.

Typically, buyers own 100 per cent of the property from the outset and, depending on the scheme, the 25 per cent loan is repayable after ten years or when the property is sold, whichever comes first.

The loan has to be repaid at market value, however, so it is advisable to buy back the shared element as soon as possible. Customers selling again before repaying the loan will only get your 75 or 80 per cent share of the proceeds.

Rent-to-buy

In some instances developers are encouraging customers to live in the property they want to buy as tenants for a trial period. For instance, the Mactaggart & Mickel Rent to Buy Scheme allows potential buyers in some developments to rent for up to three years with no obligation to buy the property.

Extras

Both Robertson Homes and Gladedale offer new buyers free insurance cover for up to three years after moving into the property.

The policies cover up to 65 per cent of a buyer's monthly net income for up to 12 months in the event of unemployment, accident or sickness.

Several builders also offer discretionary incentives tailored to individual buyers' needs, such as paying stamp duty or providing new carpets. And Robertson Homes knocks 5,000 off the list price of every new home for the armed forces, fire and rescue services, NHS workers and the police.