Quick Links:
Developers offer incentives to get reservations over the line: a contribution to your deposit, your stamp duty paid, flooring and turf included, legal fees covered, cashback. All of it has to be declared to your lender on the UK Finance Disclosure Form, and the financial incentives can change how much the lender will lend. Many lenders cap financial incentives at around 5% of the price before they start reducing the loan or the valuation, and above certain loan to value levels some will not allow cash incentives at all.
Financial and non-financial incentives
Lenders split incentives into two kinds. Financial incentives are anything that is or is equivalent to money: a deposit contribution, cashback, stamp duty or legal fees paid, estate agent fees covered, a mortgage subsidy, a rental guarantee, or a part exchange at above market value. Non-financial incentives are things included with the house: kitchen upgrades, appliances, flooring, landscaping, an electric vehicle charger. The distinction matters because most lenders ignore non-financial incentives when calculating the loan but treat financial incentives as effectively reducing the price you are paying. If the price is £350,000 and the developer contributes £17,500 towards your deposit, some lenders will treat the property as costing £332,500 and lend against that.
Every incentive, financial or not, must be declared on the UK Finance Disclosure Form before exchange.
Many lenders cap financial incentives at around 5% of the price before they reduce the loan, and some allow none at high loan to value.
Non-financial incentives such as flooring and appliances usually do not affect the loan at all.
The UK Finance Disclosure Form
Since 2018 every first sale of a newly built or converted home bought with a mortgage has needed a completed UK Finance Disclosure Form, which replaced the old CML form. The developer fills it in, listing every incentive of both kinds, and a signed copy has to reach the lender’s conveyancer at least seven working days before exchange. The valuer is given a copy at the inspection and will typically issue no valuation until it arrives. This is not optional and not negotiable, and an incentive left off the form is a serious matter for the developer and a potential problem for your mortgage. If a sales adviser suggests an incentive can be arranged informally, that is a red flag.
How the 5% figure works in practice
The most common lender rule is that total financial incentives up to 5% of the purchase price or valuation, whichever is lower, are acceptable without affecting the loan, provided the loan to value is within a set limit, often 90%. Above 5%, the excess is usually deducted from the price the lender is willing to lend against. Above the loan to value limit, some lenders allow no cash incentives at all, so a 95% mortgage with a developer deposit contribution may simply not be available with that lender. Others express the rule differently, for example that the mortgage plus incentives cannot exceed 95% of the value for houses or 90% for flats. It is lender specific, which is why I check the incentive against the criteria before you rely on it.
Does a deposit contribution count as your deposit?
Not always in the way buyers expect. Say you have 5% saved and the developer offers a further 5% contribution. Some lenders will lend 90% against the full price with your 5% and the developer’s 5% making up the rest, treating it within their incentive cap. Others treat the developer’s 5% as a price reduction, so the property is worth 95% of the headline figure and you still need to find 5% of that lower figure yourself, which gives you a 90% loan to value mortgage on a smaller loan. Both can work; they just work differently, and the rate and the loan amount differ. My new build mortgages page sets out the other criteria that come into play.
Stamp duty paid and legal fees
These are financial incentives and count towards the cap, but because the money goes to HMRC or a solicitor rather than to you, they do not raise the same question about your own deposit. My stamp duty calculator shows what the developer would be covering, and it is worth knowing that figure so you can judge whether a stamp duty paid offer is actually worth more or less than a straight price reduction of the same amount.
Speak to an expert
Been offered a developer incentive and not sure how it affects the mortgage? Send me the reservation details and I will tell you how the lenders you are considering will treat it.
Incentives and the valuation
The valuer sees the disclosure form and takes incentives into account when deciding whether the agreed price reflects market value. A large incentive package can be read as a sign the headline price is inflated, which makes a valuation below the agreed price more likely. That is a separate problem with its own fixes, covered in my guide to new build down valuations.
Should you take the incentive or a price cut?
Often a straight price reduction is worth more to you than the equivalent incentive, because it lowers the stamp duty, lowers the loan and avoids the incentive cap altogether. Developers frequently prefer incentives because they protect the headline price on the development. Which is better for you depends on your deposit, the loan to value you need and the lender’s rules, and that comparison is one I do for every new build client before they sign the reservation.
The short version
Declare everything, know which of your incentives are financial, check the lender’s cap before you rely on a deposit contribution, and compare the incentive against a plain price cut. The right answer depends on the numbers for your purchase, and working that out is what an advice appointment is for. Call me on 01425 203055 or book a 15 minute call.
Need Personal Mortgage Advice?
Every buyer’s situation is different. While this guide explains the general rules, the right mortgage for you depends on your income, deposit, credit history and future plans. If you’d like tailored advice, I’m here to help, with whole-of-market coverage.
