Page last updated at 14:34 GMT, Monday, 1 September 2008 15:34 UK

New rules to stop mortgage fraud

Man looking in estate agent's window
Prices are now much lower than they were a year ago

New rules have come into force to stop mortgage lenders becoming the victims of over-inflated property valuations.

From now on, developers and builders must reveal if they have offered buyers incentives, such as cash-backs, fitted kitchens or paid-for legal fees.

Lenders are worried these incentives have led to some properties being sold for more than they are worth.

In particular they have been worried about newly built city-centre flats, whose prices have now slumped.

The new rules for the conveyancing industry have been issued by bodies such as the Council of Mortgage Lenders (CML) and the Royal Institution of Chartered Surveyors (Rics).

They have also been supported by the Law Society of England & Wales, the Home Builders' Federation, Homes for Scotland and the Construction Employers Federation.


Builders or developers of any newly-built, converted or renovated properties will have to complete a 12-question form, revealing to lenders and surveyors any incentives they may have given to buyers.

Lenders' confidence should start to return
Michael Coogan, CM:

"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," said Barry Hall of Rics.

The CML said this would ensure that any mortgage was granted on an accurate valuation of a property, not one that was fraudulent.

"If developers ensure that they are transparent, and disclose any discounts or incentives on offer to buyers, lenders' confidence should start to return," said Michael Coogan of the CML.

The issue was first raised by the CML in February this year as the slump in mortgage lending started to grip the property market, leading to a sharp fall in values.

It said at the time it was worried that lenders were being duped into lending too much money by headline valuations that disguised the fact that the buyer might have been receiving thousands of pounds worth of incentives from the developer.

Glut of flats

Some lenders now no longer lend to people who wish to buy newly built city-centre flats.

In some parts of the country, such as Manchester, Birmingham, Leeds and Nottingham, this has led to a highly visible glut of properties which can no longer find a buyer at their original price.

The government's own house price index, published by the Department for Local Government and Communities (DCLG) said that the price of flats in the UK had fallen by 3.6% in a single month between May and June.

Overall property prices are now down by 10% since the start of 2008 and widely expected to fall much further in the next 18 months.

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