Home-builders ramp up incentives to lure hard-up first-time buyers

HOME-BUILDERS have always offered buyers deals, but some are more valuable than others. Take, for example, the West Bromwich Building Society’s offer in 2004 of a free Rover car worth over £7,000 – a year before the car-maker went into administration. The downturn has left house-builders with new-builds sitting empty all over the country, and first-time buyers are finding it hard to persuade banks to loan. This has led to builders dreaming up all sorts of incentives to attract buyers.

Among the most eye-catching are Crest Nicholson’s offer to pay for an annual season ticket worth £3,292 for the High Speed 1 rail link from Ebbsfleet to King’s Cross to those who buy at their Ingress Park development at Greenhithe. Anybody who buys a penthouse at the same development gets a £10,000 interior design voucher.

Taylor Wimpey is also offering people who reserve a new home before Monday 6 December a Christmas package including a tree, crackers, a hamper and champagne. Incentives at its other developments include a cleaner or a gardener for a year, or holiday vouchers.

The Christmas deal seems to be a popular one this year. If you reserve a property at Linden Homes’ Oakley Meadows development at Chinnor before Christmas, they will throw in a holiday – a Caribbean cruise or a trip to Disneyland or Australia – up to the value of £5,000. Linden is also offering to pay £10,000 towards a conservatory at the same development. David Wilson Homes will give buyers of flats at its Moo-ve development in Banbury an annual rail and underground pass between Banbury and London, worth £4,760.

But while these might be nice sweeteners, they aren’t likely to be enough to convince cash-strapped buyers. When it comes down to brass tacks, it’s really all about the money for first-time buyers. Although they do their best to differentiate themselves, the deals offered by all the big home-builders are pretty similar.

Firstly, they all have some sort of part-exchange offer. One of the biggest perils of moving in the current market is the risk of chains collapsing. To protect against this, Linden Homes, Taylor Wimpey and Crest Nicholson all offer a part-exchange service and guarantee to buy your old home.

Taylor Wimpey asks three local estate agents to value the property and guarantees to take it off your hands when you pick up the keys to your new home, whether it is ready to move into or not. Crest Nicholson guarantee to make an offer within seven days, and all of them will cover estate agents fees.

Second, there is a wide range of deposit-matching or shared equity deals. Banks are loath to lend to home-buyers and in many cases the best mortgage you can get requires a 10 per cent deposit. Both Taylor Wimpey and Crest Nicholson have a deal where if you raise 5 per cent, then they will match that with an interest loan, allowing you to access 90 per cent mortgages. Barratt has a similar scheme called Head Start which, they say, means that you can buy a home with as little as an £8,450 deposit in some of its London developments.

Not everybody can get hold of a 90 per cent mortgage, of course, and for those looking at 80 per cent loans, Barratt will lend you 15 per cent of a 20 per cent deposit, in the form of an interest-free loan payable after 10 years or on the sale of the property, whichever comes first. Taylor Wimpey offers the same 5/15 per cent deal, with the money repayable in up to three installments over a 10-year period. Crest Nicholson has a similar deal, which it calls Easy Buy. There is no interest for the first five years, and you pay back the loan when you sell the property.

While these look fantastic, bear in mind that not all lenders will look kindly on these schemes and that they might not want to lend to people who can only raise 5 per cent – it doesn’t say an awful lot for your financial clout, and they want to be sure you can pay back the money they lend you.

Also, be sure to read the small print when considering these deals. Make sure you are aware when you start paying interest on the loan. And be aware that in some cases you pay back not the amount that you borrowed, but the per centage value of the re-sale price, which could be a lot more.

Fourthly, there are deals that are aimed at getting friends or family to use a deposit as an investment, something which is increasingly popular for first-time buyers. Linden has a Parent Bond, which means that if a family member provides up to 25 per cent towards the purchase price they get a guaranteed return of 10.25 per cent on the amount for two years.

Taylor Wimpey has a similar deal called the Family and Friends Advantage. Anybody contributing a deposit of up to 20 per cent of the new home price to help a friend or relation will receive a return of 5 per cent per annum for five years. Fairview has a deal for buy-to-let investors. If you pay a 30 per cent deposit they will give you 8.2 per cent return for two years, on top of the rent you receive.

It’s not only the home-builders who are getting in on the incentives act – the lenders need to pull in the punter too at the moment. David Carmichael of mortgage advisor Taylor Carmichael Financial Services points out that Royal Bank of Scotland offers a lower arrangement fee to those who already hold its Royalties account. Elsewhere, Coventry Building Society is offering a £500 IKEA voucher for those who take up a mortgage with a fixed rate of 5.69 per cent until 2015 with no arrangement fee and a £199 booking fee.
Lloyds TSB has a Lend a Hand product for first time buyers who need only raise a 5 per cent deposit along with a “helper” who can pay a further 20 per cent of the property value. The money is held by the bank and earns 3.75 per cent interest per annum. The mortgage rate is 4.99 per cent for three years.
Others are simply offering low repayment rates. ING?has one of the best lifetime deals about at the moment. It has a 60 per cent LTV mortgage with the rate of base rate plus 1.85 per cent for the first two years, 2.35 per cent right now, with a subsequent rate of 2.35 per cent. The fee is £945.

David Hollingworth from mortgage adviser London & Country says that while incentives can be attractive, you have to look at the whole package. A house-builder might only require a 5 per cent deposit, and make up the rest of the money in a loan, but that is not necessarily enough to get you a mortgage. “Lenders want to see that you are putting money in and making a real commitment rather than just buying on a whim and seeing how it goes,” says Hollingworth. Lenders look at your risk profile, not just the amount of money you can access.

When you add in all the costs then saving for a deposit could still be the best option. Those with a 25 per cent deposit could, for example, get Yorkshire Building Society’s 2.89 per cent two-year fixed rate, while typical for a 90 per cent deposit would be HSBC’s 4.99 per cent two-year rate. It’s tempting to do anything to get on the housing ladder, but is not necessarily the best value for money.

Flashy incentives can be good, but the boring truth is that incentives such as a free valuation, or help towards the legal work, might end up saving you more overall, says Hollingworth .