The new standards, which come into effect on September 1, aim to ensure the conveyancing and valuation processes determine the true value of the property, reducing risk for both borrowers and lenders.
Some lenders are concerned the current processes do not always capture discounts and other incentives that buyers may be able to negotiate with developers when purchasing newly-built property. As a result lenders could unintentionally offer a mortgage based on a valuation of a property that is higher than the true price paid for it.
From September, lenders will require builders or developers of any newly-built, converted or renovated property to complete a new ‘disclosure of incentives’ form. This will be reinforced in the CML’s Lenders’ Handbook.
The Royal Institution of Chartered Surveyors will be amending its guidance to members to reinforce the requirement to disclose incentives to lenders. The Home Builders’ Federation and Homes for Scotland have recently reinforced their own codes of conduct to encourage greater transparency about discounts and other incentives and a number of major builders are taking their own steps to address the issue.
CML director general Michael Coogan says: “We are introducing these measures 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.
“We welcome the support of RICS and house-builders in implementing this solution. Responsible builders and developers understand that lenders must have confidence in the valuation process. They are supporting our initiative because they understand that, in making these changes, we will reinforce confidence in the new-build market.”