Incentives for newbuild sales
Given the market pressures of recent years, it is no surprise that developers of new homes are always looking at ways to attract buyers and to get sales across the line as quickly as possible. Obviously, every seller hopes their developments 'sell themselves', but incentives can be an effective tool to attract cash conscious buyers or to speed up sales.
Can registered providers give incentives?
As a general rule, there is no legal or regulatory reason to prohibit a registered provider from offering incentives to encourage buyers to purchase a newbuild property – this is the case whether you are selling a property outright or on a shared ownership basis.
What common incentives are offered?
Common incentives include furniture packs, upgrades to specifications (e.g. white goods/flooring) or shopping vouchers to help furnish the new home. Whilst less common for affordable housing sales, legal fees and SDLT payment contributions are also sometimes offered.
Are there any pitfalls?
Registered providers do need to ensure that any incentives offered are reasonable and proportionate to the transaction. They also need to be wary of pitfalls such as incentives masking affordability issues or inadvertently impacting market value calculations.
If not careful, incentives can do the opposite of what is intended and slow down sales, for example if they encourage buyers to offer on properties which, in hindsight, are not affordable so that they have to withdraw their offer, or if the incentives do not meet the requirements of lenders.
Lender requirements
Lenders are also wary of incentives masking affordability issues or disguising the true market value of their security. This is why they require sellers of newbuild homes to provide a 'Disclosure of Incentives' form to ensure that they are aware of any incentives being offered – both in terms of their nature and value.
Actual requirements differ from lender to lender. As a rule of thumb, most lenders tend to be comfortable with incentives being offered up to 5% of the value of a property, but will frequently be concerned by anything in excess of this. For shared ownership, the 5% limit is generally calculated in relation to the purchase price of the share.
What about the consumer codes?
The most common consumer codes which may apply to transactions are the Consumer Code for New Homes, the Consumer Code for Home Builders and the New Homes Quality Code. All three permit incentives in certain circumstances. However, requirements do vary. For example the New Homes Quality Code provides for a blanket ban on developer incentives offered when recommending a professional advisers.
Registered providers should be aware that whilst they may not directly subscribe to a particular code, they may be bound by the requirements through a JV partnership or from the terms and conditions of their chosen warranty provider. Registered providers should also be conscious that in the case of the New Homes Quality Code, given it was developed with the support of government and is linked to the newly created New Homes Ombudsman, it is anticipated that the new Labour government may look to expand its coverage. Providers should watch for developments on this front.
Conclusion
Whilst rarer in the affordable housing sector, providing incentives is a possible tool open to encourage sales. Where incentives are given, care should be taken to ensure that they are reasonable, proportionate and are not in breach of any funding or consumer code requirements.
