Incentives offered to buyers of new homes must now be disclosed to lenders
The valuation obtained by lenders and price paid for newly built homes does not always reflect the true value of the property because of incentives offered to a buyer by a developer. Typical incentives include discounted purchase prices, cashback offers and costs contributions.
The Council of Mortgage Lenders (CML) has been concerned that such market practices result in mortgage offers being made which are not based on the true value of the property.
From today, 1 September 2008, the CML is amending its standard industry instructions to conveyancers, requiring them to obtain a completed "disclosure of incentives form" from the conveyancer acting for the developer. The form ensures that any discounts or other incentives offered by developers are disclosed to the lender. The lender or its solicitor should pass this information to its valuer to ensure a proper valuation.
In conjunction with the CML, the Royal Institution of Chartered Surveyors has amended the valuation advice in its 'Red Book' of standard instructions to valuers. The amendments emphasise the need for valuers to consider the effect of any incentives which could distort the agreed sale price. This will help ensure that any mortgage is granted on an accurate valuation, and will help prevent fraud.
The CML hopes that the new procedure, set out in CML's Lenders' Handbook, will reinforce lenders' confidence in newly-built property, which has fallen due to recent experience of over-valuations and frauds. For more information on the changes, see Legal update, CML Handbook to require house builders to disclose incentives and CML: New build Incentives.