New rules have been introduced to protect both mortgage lenders and borrowers from becoming victims in what has been described as mortgage fraud, where property valuations are over-inflated due to buyers incentives, such as when builders or developers offer items such as fitted kitchens and carpets, cashback payments or free legal fees.

Mortgage lenders have expressed concern that these incentives have meant that some properties have, in the past, been sold at a higher value than they are actually worth.  The predominant area for this has been new-build city centre apartments, where prices have now slumped substantially.

New rules such as these will not affect your CeMAP training until the syllabus for the CeMAP exam has been updated by the ifs School of Finance, however, it does no harm to keep up to date with changing circumstances.

These new rules apply to the conveyancing industry, and have been issued by the Royal Institution of Chartered Surveyors (RICS) and the Council of Mortgage Lenders (CML).  These new regulations are supported by other important industrial bodies such as the Home Builders’ Federation, the Law Society of England & Wales, Homes for Scotland and the Construction Employers Federation.

In future, any developers or builders of new build, removated or converted property will be required to complete a twelve question form, which will reveal to both surveyors and lenders any and all incentives that have been given to buyers and it is hoped that lenders confidence will begin to return following these changes as it will ensure that a mortgage ie granted on more accurate valuations of the property and not what is actually a fraudulent valuation.

A spokesperson for RICS said:

“Buyers, lenders and valuers have all been victims of the non-disclosure of incentives by developers with many buyers left with a mortgage worth more than the property’s real value.”

The CML commented:

“If developers ensure that they are transparent, and disclose any discounts or incentives on offer to buyers, lenders’ confidence should start to return.”

This issue was initally raised earlier this year by the CML when the decrease in mortgage lending began to cause a fall in value in the property market.  The CML said that it was concerned that mortgage lenders had been duped into lending too much money, disguising the fact that some buyers could have been receiving thousands of pounds worth of incentives, hidden by the headline valuation.

The Impact

The impact of these buyer incentives, particularly in the city centre apartment sector, has meant that there is a surplus of apartments which cannot be sold at their original price, particularly in redevelopment cities such as Leeds, Nottingham, Manchester and Birmingham, and many mortgage lenders no longer wish to lend to those wanting to purchase these new build city centre apartments.

In just a single month, between May and June this year, the government’s house price index showed that the price of UK flats fell by 3.6 per cent.  Since early 2008, overall property prices have fallen by around ten per cent and many expect them to fall even further in the following eighteen months.

For many people, the changing economy means that they are desperate to ensure that they find the right mortgage for their circumstances, meaning the role of the mortgage advisor is slightly more difficult and yet for the customer, finding the right mortgage advisor now is an invaluable service to them.