Sales tactics of new build developers
I took a call from a friend over the weekend looking for some free advice on buying a house. He is in his 20s and is looking to buy his first home. He has been with his partner to visit a local housing development. What concerns me is the sharp tactics to which he is being exposed.
Now, obviously I wasn’t in the room with him, but it seems to me that there is a lot of sharp marketing going on here…
- They can afford the 2-bedroom option, but prefer the 3-bedroom house, which is probably slightly outside of their price band;
- They have a 10% deposit (just sufficient for a 1st time buyer);
They have now reserved a 3-bedroom house on the basis that ‘another couple’ are interested in it, and they have an offer on it, which will only be available for that weekend. This sounds unlikely to me given that there are numerous developments, with a limited number of buyers in the current market. They are being offered an incentive of an interest-free 15% loan, which is repayable in 10 years – on the basis that the house will go up in value over that period. What’s more, they must use the developer’s pet mortgage broker to be eligible for that deal.
I tried to tell him that my theory is that all new builds are 30% more expensive to start with, to give them the room to negotiate on price, or to offer ‘incentives’ like this. However, the buyer is more concerned with securing the dream house rather than the intricacies of their financial future. The mortgage broker offered them a perfectly decent loan, but over a term of 35 years to make the monthly payments affordable.
My concerns:
- Why encourage them to buy a house that is stretching their budget if to do so they must pay over 35 years?
- Why should they be forced to use a broker they don’t want?
- What happens if something goes wrong?
- To the housing market (the estate agent said their house will be worth more in 10 years time, so they can just remortgage to take on their extra debt)
- To their income – their circumstances might dictate that the mortgage becomes unaffordable or they might not be able to afford to pay back the extra 15%
- To their personal situation – what happens if they break up, have kids or want to move? They still owe the 15% incentive
Tags: mortgages
