New Rules For New Builds
In the difficult market, builders and developers have been tempting buyers with incentives, but these have not always come to the attention of lenders. To protect lenders, and buyers from the threat of negative equity, new rules will be brought in.
New build properties are going to be valued differently in future in an attempt to prevent mortgage fraud.
New rules brought in by the Council of Mortgage Lenders (CML) should help prevent mortgages from being given for a higher value than the home is worth.
Experience has shown that developers have offered incentives – such as cash-back offers – to entice buyers when the market is going through a tough period, as it is now. However, mortgage lenders have been concerned that they have not always been told about deals and discounts being offered on new properties.
Developers have offered other incentives too, including: paying the deposits for buyers; paying the legal fees; paying the stamp duty; or paying for moving costs.
Back in February of this year the CML warned that such practices could be disguising the true value of new homes, and that unwitting buyers could find themselves with a mortgage higher than the value of the home – the much talked-about negative equity problem.
Lenders, of course, are concerned about the problems they would face too, such as losses and fraud. There have been a higher-than-average number of fraud cases involving city centre new-build apartments. People who carry out conveyancing for property deals – usually solicitors – are supposed to tell the lenders of any deals involved, but this has not always been the case.
The beginning of September this year will see the introduction of new rules, as builders and developers of new builds and property conversions will have to complete a form and disclose details of all incentives. This will be a specific requirement from the CML and the Royal Institution of Chartered Surveyors (RICS).
The new rules are designed to bring in a new level of confidence in newly-built properties. Consumers will gain protection, as will lenders, from dubious practices.
The Home Builders Federation and Homes for Scotland also expressed support for the new rules. They would build, they said, on the work already done to strengthen their codes of conduct earlier in the year.
