UK House Builders Desperate Measures To Sell Stock

Posted on November 4, 2011 by editor
Posted in Economy News, UK Property Market Comment Tagged builders, desprate, house, sell, stock

I received an email today from a large well known house builder. In it were several ‘creative’ ways which allowed buyers to purchase these new built homes. Here’s a few.

Part Exchanges

The company buys your existing home for its full market value (based on the average of two valuations). They will also pair you with their ‘loan company’ who can offer a loan for any shortfall in equity required for a mortgage.

Loans For Deposits

They advocate the buyer applying for a personal loan at 5.9% minimum over 12 years for up to 15% of the purchase price. You would then only be required to put in 5% deposit.

Government Scheme

The government gives you an interest free 20% equity loan for 5 years unless you sell or move. Then you have to pay it back via the sale equity or other means.

Common Theme

Is anyone catching a common theme here? The company has clearly teamed up with a finance provider in order to fit the current banking rules to suit themselves. Seriously, how desperate do you need to be to sell? Surely, in this climate it is not a good idea to encourage this kind of double debt. This is exactly the kind of issue which led to the problems we now face.

Deposits are there for a reason. They mitigate against steep rises and potential losses.If banks are still requesting 20% or more deposits, it’s because they think prices will drop and are looking to err on the side of caution. The money they loan is secured on the property. Deposits are a kind of safety net.

Circumstances Change

These schemes are all based around putting the buyer in massive debt over a long term. One for a huge, loan and another for the mortgage. A lot can happen to a person in a 12 year span. It is very likely that they could have major life changes like new job opportunities or starting a family etc.

One of the reasons we are in a financial mess is irresponsible lending. How can major home builders get away with this when everyone else has to grin and bear it? If you went to the bank to ask for a mortgage on a regular property and you told them the deposit was from a loan with interest an rate, it is extremely likely you application would be rejected.

Lastly, history shows us that values on new homes tend to fall quicker than on older stye ones, and, they don’t hold their value so well over the long term. If home values continue to fall ( check out our Infographic article of land registry figures if you don’t believe they are dropping,) then this could leave the home owner with a depreciating asset, and a massive loan to pay on top. Thus, trapping them in one place for a very long time until they can crawl free of the debt burden.

But hey, we get to build and sell new homes, so all is well