In an effort to attract customers, house builder, Barratt Homes, is offering to protect home buyers against falling house prices. How? Plans include payments of up to £15,000 stamp duty on homes worth up to £500,000. The company claims it is also the first house builder to offer a three year guarantee 'price promise', and is also offering a part-exchange plan. But should we be tempted?
By Lucy Searle
4Homes Essentials
Property Search
UK Region Ratings
Barratt's incentives come after the government's decision to raise the stamp duty ceiling to £175,000 last week, and the news from the Halifax that the average UK home has lost £25,000 of its value in the last year. They also coincide with Barratt’s 67 per cent drop in annual profits, and a 30 per cent drop in sales in the last four weeks on the same period last year. They’re not alone - other British house builders, including Tayor Wimpey, Redrow and Bovis Homes, have all seen their profits slashed recently, despite an increase in incentives offered to buyers, with shared equity schemes making a comeback.
So is a shared equity deal, such as Barratt's, a good deal? (For the uninitiated, here’s how it works: the buyer bears 75 per cent of the cost and the house builder gives out a 10 year interest-free loan worth 25 per cent. If the property depreciates in value, you still have to pay off the original lump sum of 25 per cent.) Under Barratt's 'price promise', which lasts up to three years, a buyer who sells a house bought under the scheme at a loss will be refunded up to 15 per cent of the difference.
The answer is to whether it's a good deal is (annoyingly): it depends. It’s a good option if you’re sure you’re paying the right price for your property. If it’s over-priced in any way, steer clear. These deals are sold as '25 per cent off', but you also need to bear in mind that builders will retain the 25 per cent stake, which could potentially pay out if the value of the property goes up.
You also need to be sure that what you’re buying is a good investment for the long term. Is the location right? If you had to move out and rent it, would it be a good rental property? Is it slap bang in the middle of an estate or development with hundreds of other properties of exactly the same style and size? In which case, think again – these properties more than many others are hard to shift even when the market is buoyant because of the sheer volume of local competition.
In other words, use your head. Don’t jump into a deal that sounds, in the short term (and three years is not THAT long), like a bargain. Work out before you sign on the dotted line whether it's a good deal long term. Most importantly, don't be swayed by what sounds like a deal that’s too good to be true. Often, it is.
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