We give an update on the new rules for new-build:
1 In the boom, you could have expected to pay a premium of between 15 per cent and 20 per cent for a new-build home because it was more energy-efficient and the kitchen was the latest thing. This premium has disappeared in the wake of tougher guidelines for the surveyors who value homes as part of the mortgage approval process. These professionals now do not differentiate between new-build and second-hand homes.
2 This new valuation regime is largely the result of mortgage fraud during the boom. Some borrowers did not disclose the large discounts that they were receiving and were granted loans based on the full asking price. These borrowers are now in negative equity — their properties are worth less than the price they paid, even taking into account the discount. If they are repossessed, the bank is left with a big, bad debt problem.
3 Once bitten, twice shy, the banks are now basing the amount that they will lend to buy-to-let investors on the price of the new-build home, minus the discount. Mark Harris, of Savills Private Finance, the mortgage broker, says that the bank may disregard an incentive of up to 5 per cent if the buyer will live in the home rather than rent it out. But he warns that lenders continue to be cautious about loan applications on new-builds.
4 Discounts, which were as high as 60 per cent a year ago, are becoming less generous as the oversupply of new-build properties diminishes. Only 75,000 new homes are likely to be built this year — the lowest number in living memory. Work has started again on some sites in response to increased demand.
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Jenny
1 In the boom, you could have expected to pay a premium of between 15 per cent and 20 per cent for a new-build home because it was more energy-efficient and the kitchen was the latest thing. This premium has disappeared in the wake of tougher guidelines for the surveyors who value homes as part of the mortgage approval process. These professionals now do not differentiate between new-build and second-hand homes.
2 This new valuation regime is largely the result of mortgage fraud during the boom. Some borrowers did not disclose the large discounts that they were receiving and were granted loans based on the full asking price. These borrowers are now in negative equity — their properties are worth less than the price they paid, even taking into account the discount. If they are repossessed, the bank is left with a big, bad debt problem.
3 Once bitten, twice shy, the banks are now basing the amount that they will lend to buy-to-let investors on the price of the new-build home, minus the discount. Mark Harris, of Savills Private Finance, the mortgage broker, says that the bank may disregard an incentive of up to 5 per cent if the buyer will live in the home rather than rent it out. But he warns that lenders continue to be cautious about loan applications on new-builds.
4 Discounts, which were as high as 60 per cent a year ago, are becoming less generous as the oversupply of new-build properties diminishes. Only 75,000 new homes are likely to be built this year — the lowest number in living memory. Work has started again on some sites in response to increased demand.
Read more ...
Jenny