Guidelines over sale of new homes
Updated on 01 September 2008
Tighter guidelines for surveyors valuing new build homes have been introduced in a bid to prevent mortgage lenders advancing more on the properties than they are worth.
The Royal Institution of Chartered Surveyors has made changes to its Red Book, making it mandatory for its members to find out if the buyer received an incentive to buy the property.
Under the move surveyors will now have to ask the seller, builder or developer of a property for a 'disclosure of incentives' form, which gives full details of any financial or non financial incentives the buyer received.
Typical incentives include developers offering to pay buyers' deposits, legal and moving fees, or even offering cash-back incentives on completion of the sale.
But with many builders offering deals on new homes in a bid to meet sales targets in the current market downturn, lenders have expressed concern that they could inadvertently be advancing more than the true price paid for the property.
The form was created with the Council of Mortgage Lenders, which was concerned that incentives were not reflected in the official asking price.
It warned in February that the valuation difficulties surrounding new build properties had attracted fraudsters, leading to a disproportionate increase in the number of frauds perpetrated against new build flats located in city-centres.
As a result some lenders have reduced the loan to value ratio they are prepared to advance on a new build apartment, demanding deposits of up to 25% in some cases, while others have stopped lending on them altogether.
The CML is also making changes to the conveyancing process requiring developers to disclose incentives.
The Home Builders' Federation and Homes for Scotland have also amended their code to encourage greater transparency among its members.
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