You think you've got a bargain but you could have overpaid for your home

Should buyers beware of property developers bearing gifts? Against the backdrop of a stagnant housing market, tempting deals are proliferating. But first-timers, in particular, are being urged not to take these offers at face value.

Developers have become accustomed to the rich pickings of a buoyant market, but with prices now on the turn and the number of potential buyers on estate agents' books half the level it was four years ago, they are clutching at any means of selling their homes – including seemingly generous financial incentives for first-timer buyers. For example, it is becoming common for companies to offer a "free" deposit of up to 5 per cent and to pay buyers' stamp duty and legal fees.

However, Ray Boulger, senior technical manager at broker John Charcol, says homehunters should be wary of these deals as they can simply be an attempt to mask an overinflated initial price. "To keep the 'list' price high, a developer will market the property for, say, £200,000 but waive the deposit and often other fees. This could mean that just £185,000 has changed hands yet the final sale price is recorded with the Land Registry at £200,000 – in other words, more than it is actually worth."

Graham Ellis at the Royal Institution of Chartered Surveyors adds: "It can be difficult to get the bigger picture when valuing new-build homes, especially in an uncertain market, as there are often no comparable properties on which to base a price. This means that if the developer does not disclose the gifted deposit, it may be overlooked."

In some instances, the developer can even use its own valuer, whose estimate then finds its way on to the books of the Land Registry and is often accepted by the mortgage lender too. Thorough checks or a site visit will not be carried out, although the borrower may still be charged a fee for the so-called "valuation".

The problem of gauging the true going rate can be exacerbated by the clout of buy-to-let landlords or members of property investment clubs, who often buy in bulk and can negotiate discounts of up to 20 per cent, against the 5 to 7 per cent available to individual first-timers. So a buyer needing, say, a 95 per cent mortgage, and under the impression they have got a bargain, could actually be making repayments on a loan that is higher than the market value of the property. In other words, without knowing it, they may have started home ownership in negative equity.

Another worry for buyers is that there is a glut of new-build apartments – especially in cities such as Nottingham, Leeds and Manchester – and this is driving down prices.

In the past few months, banks and building societies have clamped down on their lending on new-builds as the credit crunch has taken hold. Some, such as Scarborough building society, have capped advances at 70 per cent, while HBOS will lend only if the property has been valued by one of its own surveyors.

All in all, people considering a new-build home should be cautious, says Mr Boulger. "This is a buyer's market and even if first-timers are offered a discount, they should negotiate hard. They should also do their homework, comparing the list price with similar second-hand and new-build properties in the area."

Melanie Bien, director at broker Savills Private Finance, adds: "There is nothing wrong with gifted deposits as long as everyone is aware of their existence. The valuer must know when assessing a property and the lender must be aware when deciding whether to advance the mortgage funds or not."