A whole new box of tricks

Developers offer new-build discounts - but do buyers really save money?

When property companies need to kick-start interest in a new development, or shift the last few remaining units on an almost complete site, they turn to one of their most powerful tools. A discount off the asking price is a sure way to encourage interest in a new property. Buyers often feel that the price of a new-build property is fixed, so the idea of a discount off the asking price is always going to be attractive.

When property companies need to kick-start interest in a new development, or shift the last few remaining units on an almost complete site, they turn to one of their most powerful tools. A discount off the asking price is a sure way to encourage interest in a new property. Buyers often feel that the price of a new-build property is fixed, so the idea of a discount off the asking price is always going to be attractive.

Developers generally offer discounts to maintain interest in a site during the quieter winter months, to shift harder to sell units on the less attractive plots, or to speed up the sale of the remaining few properties on a site so that they can vacate it.

For property companies, time is money, especially towards the end of a project. This means that there can be discounts even in a strong property market. When the market is less buoyant - as it has been over the last few months - there will be deeper discounts on a wider range of plots.

And developers' offerings are becoming more sophisticated. A few years ago, the best a buyer of a new-build property could hope for would be free carpets and curtains, or perhaps upgrades such as wooden flooring, smarter tiles or better white goods.

Today, the emphasis is more often on financial incentives. Property developers are generally reluctant to offer a straight discount off the asking price of a home; nor are they likely to advertise that a price has been reduced. Instead, they will offer incentives such as cash back on completion, paying stamp duty or even paying the buyer's mortgage for a period of time.

"When a development goes live, the property company will offer deals in order to get attention," says Simon Jones, a director at Savills Private Finance. "The developer's financial year end or the end of a site - when they are still paying all the costs to have people there - means it will also pay them to sell the remaining properties and close the site off."

Even so, buyers should look carefully at the small print of any discounts. Some incentives, such as a better kitchen or fit-out, will certainly be convenient. Then there is the added benefit that goods and fittings installed by the developer will contribute towards the mortgage valuation of the property, and will almost certainly work out cheaper than buying the same items using a credit card or personal loan.

A cash discount, though, will be easier to quantify. If a developer offers to pay stamp duty, this will be 1 per cent of the sale price for homes between £120,000 and £250,000, 3 per cent between £250,000 and £500,000, and 4 per cent over that. Buyers should check exactly when and how the developer will give the discount.

This could be by reducing the asking price, paying the stamp duty directly to the buyer's solicitor or, more likely, sending a cheque on completion of the deal. In the latter case, the buyer may well need to cover the stamp duty cost until the developer's cheque arrives.

The same questions apply to deals where the developer offers to pay part of the deposit: again, the buyer needs to know exactly how the incentive works, so that they know how much they need to raise from the mortgage.

If the arrangement is cash back on completion, buyers will need to check whether they will have to pay a redemption penalty if they use the money to pay off part of the original loan.

If the developer is offering to reduce or even pay the buyer's mortgage, this will usually be part of a package where the buyer arranges a home loan through the developer. In such cases, all the paperwork and timing should be organised by the developer and their mortgage arranger, but buyers will need to make sure they are being offered a competitive interest rate. This is especially the case if the buyer is tied in to the developer's loan once the subsidy has expired.

"Buyers should sit down and do the sums, to see whether the offer saves money in the long run," says Frank Creighton, spokesman for the Nationwide Building Society. In some cases, an upfront mortgage subsidy will help buyers stretch to a pricier home, but they need to be sure they can meet the higher repayments once the incentive period expires. Buyers should also be wary of compulsory insurance and other extras: these might cost more than the best rates on the market.

Alternatively, buyers could just haggle. If developers are advertising incentives, they may be willing to negotiate on the "cash" price. And, as with all property deals, the quicker the buyer can move, the more likely the seller is to drop the price.