The information to be given by developers to buyers of new homes and their mortgage lenders has been updated. The UK Finance Lenders Handbook (formerly known as the Council of Mortgage Lenders, Lenders Handbook) now requires developers to complete and supply a new Disclosure Form.
It is still permitted to use the old Disclosure of Incentives Form but this is being discouraged by UK Lenders and will not be accepted as valid after the end of July 2018.
The Disclosure of Incentives form was originally conceived as a means to provide better transparency concerning the financial and commercial terms of a sale of a new property. Lenders had been concerned that manipulation of the “incentives” offered to buyers of new homes was distorting the headline sale price for a new home and so over-stating the true market value of new homes, meaning that their calculations of the appropriate levels of security being offered for loans were too optimistic.
In extreme cases incentive packages had been used as a crude tool for those engaged in mortgage fraud and the introduction of the disclosure requirements acted as one measure in the industry’s response to that problem.
The new form restructures the requirements of the old form with developers being required, in addition, to provide more detailed information than previously. It has been widened in scope beyond just information on incentives. The aim is to collect a broader range of other information about the newly built property which lenders may need to be considered when making a lending decision. This includes information on the tenure type, and method of construction. Much of this information would have already been made available through the lenders’ valuers or through the solicitors representing lenders in connection with the mortgage (often also acting for the buyer) but the new form pulls it together into a single document which is intended to be shared amongst those involved in the process.
Arguably it tries to make the developers (and their agents and solicitors) more directly responsible for (and liable for) the accuracy of the data supplied to the lenders and is designed to reduce the operational burden of verifying such data at the lenders’ end. Lenders’ mortgage processing systems are increasingly automated and so seem less able to make qualitative judgements about issues which may affect their security. By putting the wider disclosure obligations onto the developers, the lenders are also seeking to transfer legal risk away from themselves and so provide them with greater legal remedies if any data is missing or misleading. The old maxim “Caveat Emptor” (let the buyer beware) is being diluted by forcing duties of disclosure onto the seller (for the benefit of the lenders principally) as a condition of allowing new home buyers access to funding.
Valuers acting for lenders will have access to these disclosures and may have less scope than before to limit their liability to lenders when preparing their valuation reports. Valuers currently routinely require their lender clients to seek verification from their legal advisers of certain material which is considered to be the responsibility of the lawyers not the valuers (such as tenure and lease terms). The new Disclosure Form puts this data onto their desk at the outset and so may make it harder for valuers to argue that such data has not been taken into account in producing their reports.
The detailed announcement is available through the UK Finance website. Please click here to access.
Please click here to access the link to the form itself.
For further information on Boyes Turner's Development and House Building team, please contact Derek Ching on [email protected].
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.