Mortgage calculator: is it better to rent or buy?

A Vauxhall Corsa, £8,000 in cash, free gas and electricity for five years: these are just some of the incentives credit-crunched housebuilders are offering to buyers of new homes. Such is the desperation of some developers to offload unsold properties that they are cutting prices by as much as 40 per cent. But not only will the developer slash the price; the company may also be happy to buy your existing home, pay your stamp duty and legal fees - and guarantee that you will receive a certain level of rental income if you are acquiring the property as a buy-to-let.

This desire to sell at almost any price is a product of the cash-strapped position of many major housebuilders; their share prices have slumped and they are finding finance difficult to secure.

Buyers must beware, of course, for all sort of reasons - the first being that the property may not be a bargain at any price. David Hines, head of new homes at the estate agent Savills, advises that buyers should not be seduced by large price cuts. “The true test is what price has been achieved on similar homes in the same development, not what has been previously asked for,” he says.

Some incentives may affect the valuation that your mortgage lender gives for your home, potentially altering the size of deposit needed. Many lenders consider that a package of incentives worth £10,000 means that the house is worth £10,000 less than the sale price. Therefore, if you are offered a mortgage at a certain loan-to-value ratio, you may have to find an extra £10,000 for your deposit.

Big discounts are likely to be offered by developers only where sales have been particularly hard to find, so purchasers need to think hard about what that means for the future value of that home. Mark Ryder, chief executive of the developer Isis, says: “The new developments offering 30 to 40 per cent discounts now, there's not much hope for those as places. You have to think what those areas are going to be like in five years' time.”

That does not mean that all discounts should be avoided, just that buyers should exercise caution. Indeed, some people believe that the present level of discounting will not last much longer. Since the start of the downturn, builders have slashed their build programmes, meaning that once the surplus stock is finally sold, the current glut of properties may quickly turn into a shortage.

For those with ready cash and strong nerves, now could be the time to buy. Here are ten of the most eye-catching deals:

1 Abbots Brook, Lymington, Hampshire

Quantum Homes is offering up to £145,000 off units in this 11-home eco-development. The price of the four-bedroom Macarthur House has recently dropped from £895,000 to £750,000. Savills: 0800 0113095.

2 The Refinery, Bristol

The Ashlar Group is offering up to £50,000 off some flats in this scheme of 65 flats near Bristol Temple Meads station. A two-bed flat with balcony has dropped from £249,000 to £200,000, and a one-bedder is down from £220,500 to £185,000. Savills: 0117-910 0354.

3 The Gallery, Shadwell, East London

Metro Associates is offering up to £70,000 off the asking price on some units, which have dropped from £485,000 to £415,000. The location offers access to the 2012 Olympic site, plus an integral coffee shop and gallery. Foxtons: 0800 3698667.

4 Ecostessey Park, Norwich

Roy Williamson Properties is offering free energy bills for five years in this 22-home development, which is three miles outside Norwich on the banks of the River Tud. Homes have solar-powered hot water, photovoltaic panels and tanks for harvesting rainwater. Savills: 01603 229258.

5 The Gateway, Rothwell, Leeds

MPM Investments is offering up to £8,000 off the asking price or a free Vauxhall Corsa at this development of flats near Leeds. Prices start at £139,950. Morgans: 0113-398 0099.

6 WhiteGates, Stalybridge

Countryside Properties is offering homeowners part-exchange of their old house at 110 per cent of its market value if they agree to buy a new home. It also offers a scheme that guarantees the value of the property bought for five years, should the buyer decide to sell. Countryside: 01457 839518.

7 East Shore Village, Sunderland

Miller Homes North East is offering nearly a third off the asking price of parts of this development. One and two-bedroom flats, previously on sale for £140,000, start at £99,000. They are also available on a 75 per cent pay-now basis, which means that buyers need borrow only three quarters of the asking price up-front. Miller: 0800 8408498.

8 Spectrum, Manchester

Dandara will pay buyers £800 a month towards their mortgage for the first year. Flats in this development of 580 studio, one and two-bedroom apartments start at £124,000. Dandara: 0161-829 3040.

9 The Grange, Desborough

Barratt is offering homeowners the chance to pay no more than their current mortgage payments until 2010 if they agree to buy any of the 114 three, four, and five-bedroom properties here. The deal includes part-exchange of your existing home and payment of legal fees and stamp duty. Barratt: 01536 763012.

10 Paper Mill Yard, Norwich

City Living is offering a “rent now, buy later” scheme. Buyers interested in the 180-home scheme of one, two and three-bedroom flats have the opportunity to rent at an agreed price, then decide in a year's time if they want to buy. If so, the house is theirs for the asking price, minus whatever rent they have paid. The scheme is a conversion of Victorian warehouses built by Colman's Mustard. Savills: 01603 763850.

Joey Gardiner is housing editor of Building magazine

Times recommends

• Second homes: credit crunch casualty or money-spinner?
• How I built my own sliding house
• Top 10 incentives for house buyers