Incentives for First-Time Buyers: Why You Should Keep Your Eyes off the Prize

For a first-time buyer struggling to afford a home, the offer of someone else paying your mortgage for a year is enticing. This is what Millwood Designer Homes has pledged to anyone who buys a home in its Cherry Tree Lane development in Ewhurst, near Cranleigh in Surrey, under the Help to Buy scheme. Prices for a two-bedroom terraced house start at £415,000. The offer is valid this weekend only and the payout is capped at £12,000. Extravagant offers such as this are far from unusual among developers struggling to sell homes in areas with slow markets and stiff competition, according to a survey by the Home Builders Federation (HBF). It found the number of builders using incentives to sell properties has risen by 28 per cent in a month. “In some cases incentive schemes can be indicative that a development isn’t selling as well as expected, but often it’s due to fierce competition in the new-build market,” says Thea Heaton, a new-homes manager at the Guildford office of Strutt & Parker, an estate agency. “In the case of Cherry Tree Lane, the Cranleigh area is extremely popular with developers, so it’s important for them to differentiate themselves. Incentives are one way to do this.”

While these extras may sound like a bonus, buyers beware; they may not be as lucrative as they seem. We take a look at some of the incentives offered.

Vanderbilt Homes is offering to pay the stamp duty on homes in its Lynbury Crescent development, also in Gerrards Cross. The price of its three-bedroom apartments have been reduced from £1.45 million to £1.1 million. With buyers in London paying an average stamp-duty bill of £14,000, according to Haart estate agency, it is a popular incentive. The most generous bonus can be found at Manhattan Plaza in Canary Wharf, east London, where Telford Homes is offering an all-expenses-paid trip to New York plus £10,000 of spending money to buyers of its penthouses, which are on the market for £745,000.

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Are these deals too good to be true? Not always. If a developer faces fierce competition in a particular area and needs to distinguish itself, the incentives could genuinely be a bonus.

Walter Mythen, a director at Johns & Co, an estate agency, says: “Developer incentives are necessary to stand out from a crowded marketplace. Take Canary Wharf: there are large numbers of well-priced, high-quality new-builds all offering a concierge, pool, gym and other facilities. Developers need to be able to offer something slightly different.”

Steve Turner of the HBF agrees. “As with any consumer-focused business, in a competitive marketplace builders will look at offering incentives to encourage you to buy their product.”

However, Marc Schneiderman, a director at Arlington Residential, an estate agency, says: “Incentives offered by developers are usually just promotions or, in some instances, gimmicks.”

In the case of mortgage-related incentives, you may have to use a developer’s broker, plus there may only be certain lenders who will tie in with such a deal. This means that you could end up with a mortgage that has a poorer interest rate than you could negotiate yourself on the open market, leaving you with larger repayments when the honeymoon period ends.

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Also, accepting add-ons may have an impact on the mortgage that you are offered. You need to declare to loan companies anything added to a sale that may alter the amount granted by changing the loan-to-value ratio.

Saul Empson, a director at Haringtons, a buying agency, says that many incentives are merely a trick by developers to lure buyers into overpriced properties in a slow market when they should instead be dropping prices.

“It’s all too easy for a naive first-time buyer to get bamboozled or starry-eyed over all the fringe benefits and totally lose sight of the primary objective, which is to buy the best possible property, on the best terms, at the best price,” he says. “Ask yourself, do you want a £9,000 car thrown in with your house, or would you rather have £50,000 off the price?”

The clear message is to keep an eye on the thing that matters most — that the price you are paying is a fair reflection of the value of the property.

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HAGGLE A DEAL There are ways to take advantage of a developer’s weak spot. To drive future sales, it helps if a developer can tell prospective buyers that it has already sold a property in a development, so it will push the show home. Buying the show home is a good way to gain some extras, such as soft furnishings or a landscaped garden. If you’re an investor, you could consider leasing it back to the builder, giving you a good yield for a guaranteed period.

Developers generally report their accounts twice a year — at the end of June and before Christmas. Try to buy in the weeks leading up to these times, because developers are more likely to drop prices to make their sales figures look more impressive.