CML act to restore new build confidence

For some considerable time, it has been apparent that the valuation and conveyancing processes have not always taken full account of discounts and other incentives offered by developers to purchases of new build properties. Whilst it has been fairly easy to quantify the impact of complimentary white goods, or perhaps a 5% deposit paid scheme, there has been a significant grey area when properties have been bought off plan at larger discounts or other incentives. This has meant that, in some instances, lenders have unintentionally offered mortgages based on a property valuation that was higher than the true price paid. This has been a particular problem where large developments of new build flats are concerned, and has led to many lenders withdrawing from this market or severely restriction the maximum loan to values they are prepared to lend.

The Council of Mortgage Lenders has announced that the new procedures will come into effect on September 1st, and will ensure that the conveyancing and valuation processes capture the true value of the property, reducing risk for both borrowers and lenders.

From the beginning of September, lenders will require builders or developers of any new build, converted or renovated property to complete a new disclosure of incentives form. This will be reinforced in the CML’s Lenders' Handbook, which sets out specific requirements for conveyancers acting on behalf of lenders in property transactions.

The move is supported by the Royal Institution of Chartered Surveyors who will be making amendments to its guidance to members at the same time.

Michael Coogan, director-general of the CML, said that the measures were being introduced to help sustain confidence in the market for newly built property.

“Lenders need to know about discounts and other incentives so they can be sure that the decision to offer a mortgage is based on a reliable valuation of the property. The new measures will provide additional security and safeguards for borrowers, as well as lenders.

It is widely hoped that these proposals will see a return of appetite among lenders when it comes to lending on new build flats and apartments.

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