Lenders were becoming increasingly nervous about the robustness of valuations in the new build BTL market in the last quarter of 2005 but inevitably The Mortgage Works’ decision provoked other lenders to reassess their own policies.Subsequently, the Co-op completely pulled out of the new build market, including residential purchases and houses, but it has withdrawn from and then re-entered the BTL market before. Several other lenders have taken less drastic action, mainly reducing their maximum LTV on new build flats and flats up to one year old, typically from 85 per cent to 75 per cent. Lenders taking this action include Derbyshire, Capital Home Loans and Coventry. HBOS announced a few months ago that all valuations on new builds must be done by its in-house valuation arm, Colleys, but it and other major BTL lenders such as Mortgage Express and Woolwich have not changed their lending policy, although, no doubt, they are monitoring valuations carefully. Lenders’ rationale for their actions was that the new build market in flats had become so distorted by hidden builders’ incentives that valuers could not provide a robust valuation. A valuer’s job is clearly more difficult in present market conditions and the activities of the property investment clubs is a material factor here but it is in times like this that a valuer can really prove their worth. A more measured lender response would, on the face of it, have been to ask the valuer to provide better comparables to justify their new build valuations. However, one needs to consider the agreement between the Council of Mortgage Lenders and the Royal Institution of Chartered Surveyors, as detailed in the Red Book, on how new build properties should be valued. This stipulates that valuers should obtain comparables from previous sales on the same development and, if necessary, from sales of other new build properties on similar developments. There appears to be no provision to use second hand properties for comparables. New builds tend to sell at a 10-17 per cent premium to other properties and so using other properties to provide some additional comparables and then factoring into the valuation the new build premium could provide a useful control mechanism. It is worth considering why this problem has arisen. To a considerable degree it is because the Office of the Deputy Prime Ministers increased on a national basis the housing density that developers must achieve from 25 to 40 homes per hectare. As a result, developers have been forced to build many more flats but fewer houses than demand dictated. The effect on the value of flats was all too obvious. Maybe this was just what the Government intended so as to help first-time buyers or maybe it was the law of unintended consequences. You judge, bearing in mind that John Prescott heads the Office of the Deputy Prime Minister.
Clients are in urgent need of pension protection advice as A-Day looms
The Exchange has launched a new version of its web building solution for advisers, Advisernet, offering additional functions and features.The new Advisernet provides users of the portals Exweb service with a bespoke website including the ability to customise each page, unlimited extra pages, on screen editing of content and full compliance audit trail.The Exchange says […]
Standard Life International
Unions representing 1.5 million local council workers are to ballot for strike action over plans to raise their retirement age from 60 to 65. These workers were excluded from DTI Secretary Alan Johnson’s deal with other public sector workers.
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