ASK THE EXPERT


Q. I am considering buying a new-build property, and a friend mentioned reading something recently about “incentive disclosure.” Could you enlighten me, please?

A. Your friend is probably referring to new rules brought in last Autumn by the Council of Mortgage Lenders (CML).

With the current state of the housing market, developers have taken to offering all kinds of incentives to get buyers to sign on the dotted line. These incentives can range from free holidays or cars, to offers of financial help with stamp duty and legal expenses. Some developers even offer to pay your mortgage for the first 6 months or a year.

In one sense, this is all perfectly normal business practice, of course. But with incentives becoming more and more widespread, lenders have started to show concern. After all, as they see it, every pound offered in incentives of this kind is effectively a pound off the value of the property they are being asked to lend on. In other words, if you are looking to buy a brand new flat for £200,000 and the developer offers you incentives worth, let us say, £20,000, then as far as the lender is concerned the real value of the property is actually £180,000.

Why does this matter? Well, banks or building societies are effectively being asked to lend against a risk - a risk compounded of the buyer’s ability to pay, and the value of the property concerned. Clearly, therefore, they need to know all about any incentives being offered, so that they can assess that risk accurately. That’s why, last September, the CML introduced a new “Disclosure Incentives” form, which your solicitor must lodge with your lender before any funds can be released.

Obviously, if you need – and are hoping to get - a high loan-to-value mortgage, then the fact that lenders now take incentives into account may come as an unpleasant surprise. On the other hand, if you have the necessary funds, then the extra paperwork shouldn’t be a problem at all.

However, it’s worth emphasizing that this is no mere formality. If a lender subsequently discovers that any relevant information has been withheld, they are perfectly within their rights to terminate the loan at any time. And that could be a very unpleasant surprise indeed!