Agreed a deal on a new build property-developer paying half the stamp duty. Anyone have any experience of mortgage lenders allowing this or disallowing it? Also emailing some mortgage brokers today for some rates/information but any advice greatly welcomed!
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I don't think a house seller would offer you a scheme that the banks won't accept. How the hell do they shift any houses if they do that?
Read the T&C's. How are they actually paying it? They giving you cash? Discounting the price by the cost of the stamp duty, they pay their half to the solicitor during the process. I can't see why the lenders would give a hoot who pays it.'CUK forum personality of 2011 - Winner - Yes really!!!!
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We thought that too as its such a common incentive these days with new builds and at land registry it means their "sold price" appears higher.
However, first email response we have received is...
"I spoke to a senior underwriter for Halifax yesterday, and they 100% do not accept any form of gifted deposit, or stamp duty"
I honestly wouldn't have thought it a problem if we openly declare it-maybe would affect valuation but that wouldn't bother us as we are happy to borrow the equivalent of the stamp duty less...Comment
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It's not gifted. It's a contract. They are completely different and so completely different risk profiles.
Again, depends on how it is accounted for. Many clever ways of doing it that don't make it look gifted. Need to check the details of exactly how it is paid.
Maybe related but my friend recently bought a new build and he had to use an IFA to find a mortgage. Not all lenders are happy to lend on them and this could be the reason why.'CUK forum personality of 2011 - Winner - Yes really!!!!Comment
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Thank you. This advice was given by CMME (contractor money made easy)-husband a contractor. I'll go back and check this with them. Interesting...Comment
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Hi sbmcb,Originally posted by sbmcb View Post
The advice you have received is not correct.
Halifax will allow the builder to provide you with incentives (to include gifting you some deposit, stamp duty paid incentives, additional household goods like white goods, carpets etc) so long as the total value of the incentive does not exceed 5% of the purchase price which 50% of stamp duty being paid will not.
As Northernladuk says above, numerous builders will offer incentives like the one you have been offered and without a lender accepting it they simply wouldnt be able to sell the properties.
So yes, it is fine.Comment
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Hi Lisa,Originally posted by LisaContractorUmbrella View Post
That is more to do with the stamp duty avoidance schemes where some Solicitors found loop holes in the stamp duty tax laws enabling clients to get away with paying stamp duty. Normally the firms who do this would charge a fee which means you end up paying a fraction of the cost of the stamp duty but as the article points out, the loop hole has closed down now.
This isn't related to stamp duty incentives offered by the builders or developers of new build properties though. In this instance the builder pays the stamp duty for the client.
It is a clever tactic employed by builders and developers to keep the property purchase price high which helps them to then sell the next property at a high price maybe not offering the same incentive to the next client and thus increasing their profitability.
Some lenders would argue if you are buying a property at £100,000 but the builder is giving you £5,000 of incetives then technically you are only paying £95,000 for the property and that is all it is worth but to those lenders who allow builder/developer gifts then the mortgage is agreed with the value of the property stated at £100,000. The incentives have to be disclosed as part of the CML requirements but it adds weight to the builders/developers ability to sell the next property for £100,000 if they can show that Mr & Mrs Smith next door paid £100,000 for the identical home they are trying to sell next. What they rarely will disclose to the new buyer is the incentives they paid to Mr & Mrs Smith in the hope that the new buyer wont ask for as much.
The stamp duty loophole was an interesting one though. I would never advocate it myself personally but one or two of my clients did utilise the scheme (arranged by themselves and against my advice). To my knowledge they have not had to pay the stamp duty but I dont know if HMRC have the ability to retrospectively ask for the stamp duty at a later date. The firms facilitating the loophole gave all kinds of promises that they could not but I was not overly convinced.Comment
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Back in the day (when all this were fields) the halifax mortgage systems underwent some kind of tweak to capture data around this very sort of issue. Leaving aside any CML or BoE reporting which is required then from a basic underwriting perspective it's important to know what the actual value of a property might be.
The example i remember was a developer offering a car as a sweetner to take the deal. The banks point of view being they didn't want to lend 95% of the cost of a property when £10k of that was actually for the purchase of a new mini.
What they'll be using to calculate your LTV will be the purchase price minus any incentives. So it might have an impact on the products which are made available to you, but it's not a deal breaker in terms of securing a loan in the first place.
I don't recall* anything about incentives not exceeding 5% of the purchase price. Once underwriters get involved there's a human element so it's possible that cashback offers on completion will be viewed differently to other forms of incentive. After all, Halifax were offering to pay half the purchasers council tax for the first year of FTB purchasers not so long ago.
* - this is no guarantee, i'm talking about a development in 2007!Comment
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Yes, back in 2007 it was not so strict than it is now but you are right, the Halifax systems when you key a mortgage do ask the value of any incentive being offered by the developer/builder. This 'incentive' can include anything which the builders are duty bound to report to the CML so would be any gift toward the deposit, contribution toward stamp duty, additional goods for the property or in deed a new car.Originally posted by barrydidit View Post
Your point about a bank not wishing to lend 95% of the purchase price if £10k was to purchase a car is exactly the reason that they have now capped the incentives to 5% which a lender is happy to allow. They appreciate that builders/developers do offer incentives and a lot of the time it makes the difference between a client being able to purchase the property or not, especially if the client doesnt have a large enough deposit but the builder is gifting some of the deposit.
However all incentives are viewed the same way now regardless of what they are otherwise if a lender was ok with certain types of incentives, builders and developers would abuse that incentive heavily creating a false value of the property.
For example, if they said that paying for goods inside the property was allowable and not part of the incentive then there is nothing stopping the builder kitting the house out entirely with new furniture which could cost say £15k. If the mortgage defaulted, the clients could take all those goods with them so the property would not retain that £15k of value yet you can be sure the clients would have paid for that £15k with an inflated purchase price.
Halifax offered to pay half of the purchasers council tax for the first year as an incentive. This is different to a gift offered by the developer as Halifax would build the costs of this incentive into what they perceive to be the profitability of the mortgage which they can control. What they cannot control as much is how much the client pays for a property and what it's true value is in relation to how much they are paying for it which is why they are keen to control and restrict builder gifts/deposits because uncontolled, they would end up lending substantial funds against properties which were simply not worth what the clients paid for them should they need to repossess the properties and sell them on.
In a large number of instances, new build properties are similar to brand new cars with the age old expression stating you lose £x thousand from the purchase price as soon as you drive the car off the forecourt. Of course the difference with property is that historically it has always increased over time so a slight initial dip in the property value wont have much impact if it recovers in value over time but I would expect in a large number of cases, if you purchased a new build property from a developer and tried to sell it within a short period of time, you would struggle to recoup what you paid for the property as the novelty of it being a new build and you being the first person to live in the property is not present any more. This is especially the case if the original purchase included incentives offered by the developer. Especially if a potential buyer could go to the same developer and buy a property they were building now identical to the one you are selling because the developer would again offer incentives and cashback meaning you would technically be paying less for the property.
Obviously this wont apply to a number of cases where like London where property prices seem to be continuosly increasing compared to other areas in the UK which do not increase as quickly and it is also very rare you would buy a new build property and move very quickly afterwards.Comment
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