How Builder Paid Deposits Work
A "builder paid deposit" is a specific type of gifted deposit that is usually supported by at least a few gifted deposit mortgage products on the market at any given time.
Effectively, a builder paid deposit is a discount on the true market value of a property that is being sold by a developer.
If a property buyer wishes to utilise the builder paid deposit, they will need to make their lender aware of this and use a special gifted deposit mortgage product to fund the purchase of the property.
For the gifted deposit to represent a true discount off the market value of the property, the full value of the property (gross price without the discount) must be verified by a RICS certified surveyor.
In other words, if a builder grants a discount from the listed price of a property and a surveyor believes that the listed price is too high, the discount is not a true discount.
Instead, it will be a discount from an inflated price.
Once the true gross price of the property has been established, any discount given may be suitable for use as a gifted deposit with certain gifted deposit mortgage products.
In order for the discount to be used, the lender of the gifted deposit mortgage must support the scheme.
For example, if the listed price of a property is £150,000 and a RICS certified surveyor agrees that this is a reasonable price to sell the property for, the developer may grant a 5% discount, or £7,500, off the listed value.
If the buyer purchases the property with a gifted deposit mortgage that has a maximum loan-to-value ratio of 90%, and it also allows for a 5% builder gifted deposit, then the discount can be used as part of the deposit.
This will mean that the buyer will only be required to pay for a 5% deposit through other means such as cash.
In other words, the builder will pay for half of the deposit through their genuine discount, and the borrower will fund the other half of the deposit with their own cash savings.
Because of the complexity of gifted deposit mortgage products, and the fact that they are constantly changing and evolving, professional advice should be sought before applying for a gifted deposit mortgage.
Effectively, a builder paid deposit is a discount on the true market value of a property that is being sold by a developer.
If a property buyer wishes to utilise the builder paid deposit, they will need to make their lender aware of this and use a special gifted deposit mortgage product to fund the purchase of the property.
For the gifted deposit to represent a true discount off the market value of the property, the full value of the property (gross price without the discount) must be verified by a RICS certified surveyor.
In other words, if a builder grants a discount from the listed price of a property and a surveyor believes that the listed price is too high, the discount is not a true discount.
Instead, it will be a discount from an inflated price.
Once the true gross price of the property has been established, any discount given may be suitable for use as a gifted deposit with certain gifted deposit mortgage products.
In order for the discount to be used, the lender of the gifted deposit mortgage must support the scheme.
For example, if the listed price of a property is £150,000 and a RICS certified surveyor agrees that this is a reasonable price to sell the property for, the developer may grant a 5% discount, or £7,500, off the listed value.
If the buyer purchases the property with a gifted deposit mortgage that has a maximum loan-to-value ratio of 90%, and it also allows for a 5% builder gifted deposit, then the discount can be used as part of the deposit.
This will mean that the buyer will only be required to pay for a 5% deposit through other means such as cash.
In other words, the builder will pay for half of the deposit through their genuine discount, and the borrower will fund the other half of the deposit with their own cash savings.
Because of the complexity of gifted deposit mortgage products, and the fact that they are constantly changing and evolving, professional advice should be sought before applying for a gifted deposit mortgage.
