New measures to ensure greater transparency for mortgage lenders on new build houses

The House Builders Federation (HBF) has unveiled new measures to ensure greater transparency of prices of new build houses to lenders as well as home buyers.

The move follows concerns that incentives in selling homes "off plan", when developers and builders sell all or part of a development before construction is completed, may distort the value of a property for borrowing purposes and conceal the real amount paid.

Police have warned fraudsters could exploit incentives offered by housebuilders, allowing them to secure loans for more than a property's real value.

Stewart Baseley, Executive Chairman of HBF said: "This amended code will provide assurance to home buyers and lenders alike that discounts and incentives are totally transparent."

The Council of Mortgage Lenders, which held discussions with the HBF over the issue, welcomed the move, expressed concerns that the code was voluntary.

The CML said: "Both lenders and home buyers benefit from full disclosure of the incentives and discounts offered by developers because it ensures that lender can see the full details of the transaction and can make a robust mortgage offer".

The CML added it would continue to work with the HBF and RICS to build on the foundations of the amended Code of Conduct.

Under the new code, drawn up after discussions with the Council of Mortgage Lenders, HBF members must:

  • Provide customers with a sales reservation confirmation showing the gross sale price and any sales incentives, whether in cash or otherwise
  • .All sales incentives which are cash discounts or cash deductions reducing the sale price must be disclosed on both the sales reservation form and the sale contract, with the resulting balance shown as the net sale price.
  • The sales reservation must be made available to the buyer's conveyancer as a matter of course and to the lender or valuer on request.
  • All payments to third parties relating to the sale, above 5% (including introductory and commission payments, but excluding payments to instructed selling agents) will be disclosed to the buyer's conveyancer.
  • Any sales incentives provided to the customer after the date of reservation but prior to exchange of contracts must be notified to the buyer's conveyancer who is under a duty to disclose them to the lender.