It seems that with the arrival of spring the builders come out of hibernation. There are several apparently dormant sites locally which seem to have miraculously sprung into action, with ground clearance works and foundations appearing. The speed at which new build flats and houses are built is a credit to the building trade, which seems to have mastered the art of Lego-construction.

The true value of a new-build property is always subject to debate. There is all round pressure to push the prices as high as possible, the builder being eager to obtain the highest sales prices possible the local estate agent is usually only to pleased to also push for the highest value. New build properties are generally 10% higher than their second hand equivalents, however it is not unusual to see the first phase of a development hit the market at significantly higher margins.

You would think that these higher purchase prices would cause problems for investors? Well they do!

In order to justify the higher prices builders will often throw in some incentives to make the deal appear more attractive. A few years ago builders started offering "early bird discounts" or "gifted deposits" during the build stage to investors (or investments clubs). The pitch would promise guaranteed tenancies, and thereby guaranteeing impressive yields on investment. Some of these developments in London, Manchester and Birmingham were being offered to the market at fantastically inflated prices. The developer would simply add 15% to the sale price and then offer the same 15% back as a gifted deposit.

Lenders stated to get wise to these types of deals and started to block certain types of purchases, so developers then started to shift the incentives to post-completion deals. It is much harder for a lender to spot a cash-back incentive or carpets/white goods type deals. Another tactic employed to try and sneak an above value purchase under the radar was for the borrower to purchase the property on a bridge. Bridging finance is usually based on the reported Market Value of a property and not the purchase price, the borrower would then immediately re-mortgage the property on to a buy-to-let mortgage.

Having recognised that builders will offer incentives to investors, particularly if the investor is buying off-plan or as part of a group, there are now some lenders willing to accept a "builders deposit" provided that the applicant is putting in at least 5% cash. Also, there are lenders willing to accept immediate re-mortgages.

It is probably testament to the value of the buy to let market that lenders are wiling to play cat-and-mouse with developers and investors. It is ironic that this practise of pushing the new build buy to let market to its limits is in tern guaranteeing tenancies for the landlord as higher prices push more first time buyers out of reach.

[tags]buy to let, property funding[/tags]