From The Telegraph:
Mike Farley, chief executive of Persimmon, the UK's second largest housebuilder, said home buyers were still finding it difficult to secure mortgages, particularly on new homes. "It makes absolutely no sense that some lenders won't offer as high a mortgage on a new home as they will on a second hand house. We need more competition to change this," said Mr Farley.
Well duh.
It makes absolutely perfect sense, partly for the reasons that Drewster explains at comment 2 at HPC; partly because there appears to be a "new house premium" of 5% or 10%, which clearly disappears after a couple of years*, and partly because of the risk that there is subsidence or something which is far more predictable/manageable with older homes.
To use a crude analogy, if somebody buys a second hand car for £5,000, it will lose value at £500 a year, but if they buy a new version of the same model for £15,000, it will lose about £5,000 in value in the first year or two. So if you are in car finance and expect the loan to be repaid over three years, you'd be comfortable lending the the buyer of a second hand car 70% of its current value, but you'd only lend the buyer of a new car 60% of its current value; and if you did offer a 90% new car loan, you'd have to charge a higher interest rate.
And 'more competition' will not have the slightest effect on the difference between new and existing houses.
* FormerTory in the comments reminds us about 'incentives', so what I should have written is: "there appears to be a "new house premium" of 5% or 10%, which clearly disappears after a couple of years; and 'incentives' can inflate the official selling price by another 5% or 10%, which is purely fictitious value that never existed."
All That’s Wrong
3 hours ago
6 comments:
It's also the case that builders are adept at hiding incentives; and woe betide the rare incorruptible valuer who dares to value a new house at something less than the advertised price.
People will happily overpay in the heady rush towards "ownership" of a new house in the belief that they can't lose - a few Leylandii and a patch of muddy grass, some poxy brass curtain rails a bit of laminate floor and whoopee! We're making a profit!
As you (and Drewster) say, the lenders are just factoring in risk. And Phirsty and Kill have some serious charges to answer.
FT, good call! I'd forgotten about the 'incentives', which is another reason to knock a blanket ten per cent off the official selling price.
Mark, I don't think Mike Farley was talking to you! If he had been, he would have probably spoken the truth.
I don't suppose you get to be chief exec of one of the biggest housebuilders in the country by being that stupid, and I don't believe you get there without telling the odd porky or two either.
Ah Hem. I did some 'time' with Barratts as a part exchange 'negotiator'. Barratt's had a roughly 10% 'marketing budget' in each new home which could be used to support any house sale / deal. They never offered a 10% discount, but I could use the money to overpay for a 'second hand house'.
Hence the experience from the coalface confirms all our suspicions.
B, I appreciate a good bit of shroud waving as much as the next man (so if they rail against planning resrictions, fair play) but this one just didn't stack up from the word go.
L, thanks for extra info, in which case a mortgage valuer ought to knock off at least 15% from the official price.
..if you did offer a 90% new car loan, you'd have to charge a higher interest rate..
Or package it up with lots of other dodgy loans and sell it?
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