Published 28 January 2019 · Last reviewed 28 January 2019 · Older article — see current rates
Purchase incentives from property developers to fund part of the
For many years purchase incentives for property have been offered. The main concentration for purchase incentives is developers of new build plots, and the target market for property incentives is typically first time buyers.
From a mortgage lender perspective purchase incentives are often met with scepticism as the core behind mortgage lending is the property being offered as collateral and they fear “add-ons” might mask the true value leaving them with a shortfall in the event of repossession.
Why to purchase incentives exist?
They are method of the vendor, typically a developer, to entice purchasers to buy their property over others they might have seen.
Purchase incentives can bespoke cosmetics or goods which appeal in particular to first time buyers who would otherwise need to shop for their own furnishings. Typical items include white goods, carpets and curtains.
Alternatively, it could be a cash purchase incentive which has monetary value to cover purchase related costs such as stamp duty and legal fees.
How are purchase incentives evidenced?
The Council of Mortgage lenders have devised a form (Disclosure of Incentives Form otherwise known as UK Finance Disclosure Form Version 1) which the vendor needs to complete to ensure transparency in the purchase transaction.
The mortgage lender’s surveyor will also work this information in the form into their own valuation assessment. The conclusion will result on the mortgage lender working off the lower of the purchase price or mortgage valuation.
How do mortgage lenders assess purchase incentives?
The common stand point is to accept builder incentives up to 5% loan-to-value. So for example if you were buying at £100,000 the purchase incentive could not be greater than £5,000. There are lenders which may consider a greater percentage or not lend at all.
If the vendor is not a builder or developer it is highly likely there will need to be a relationship for which a purchase incentive makes common sense. For example, a family sale or purchase off an existing landlord.
Will the mortgage lenders need me to put a deposit in as well as the purchase incentives?
Yes, this is likely to be 5% to 10%.
Will the mortgage lenders allow part-exchange of another property as a purchase incentive?
This is generally un-liked.
Niche Advice arranges all types of mortgages including those with purchase incentives.