Mortgage incentives prompt lenders not to loan for city centre flats; MORTGAGE FRAUD.
The Council of Mortgage Lenders said discounts and incentives offered by housebuilders had made it increasingly difficult in recent years to assess how much a brand new property was really worth.
As a result it said buyers could end up with a mortgage worth more than their property's value, while lenders could be exposed to fraud and potential losses.
It warned that the problem could get worse as the housing market slowed down, as developers were increasingly likely to offer incentives in a bid to meet their sales targets. The group said it had become common practice for developers to offer a package of incentives which could have a material impact on a property's price and value.
It said these incentives ranged from paying legal fees and stamp duty, to cashback offers, reduced mortgage payments and even holidays.
The CML said substantial incentives could mean that while the official price of a property remained unchanged, the buyer needed to hand over less money for the deal to go through.
It said if the lender and valuer were aware of this, they were able to take it into account in the valuation and subsequent mortgage offer, but if they were not aware of it they could end up advancing more than the property was worth.
For example, the report said a property may be sold to a buyer for pounds 200,000 before any discounts are taken into account, and they may be looking to borrow 90 per cent of this or pounds 180,000.
But if the buyer received a discount from the developer, the actual price they pay may be just pounds 170,00, meaning the lender has advanced pounds 10,000 more than the property is actually worth.
CML senior policy adviser Matt Smith said: "Rising house prices, the lack of clarity around new-build transactions, the valuation difficulties and the consequent prospect of making quick profits are vulnerabilities that have attracted fraudsters."
He added that this had led 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.
Other lenders have stopped lending on city centre flats altogether.
The CML is calling for all incentives and discounts offered to buyers to be disclosed to mortgage lenders to improve transparency.
At the same time the Royal Institution of Chartered Surveyors, in conjunction with the CML, is updating its Red Book, emphasising the need for valuers to take into account sales incentives that could distort the agreed price.
Mortgage application forms are also being amended, all of the changes are expected to come into force by the summer.
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|Publication:||The Birmingham Post (England)|
|Date:||Feb 8, 2008|
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