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House builders accused of flouting new code of conduct

Mortgage brokers have raised concerns that some housing developers are flouting industry regulations by putting undue pressure on buyers to use in-house mortgage services.

South Coast Mortgage Services director Gareth Davies has said that he has seen two cases in the last week alone.

In both cases clients were told that they couldn’t purchase the property they wanted, unless they arranged a mortgage with the developer’s recommended broker.

He called for regulators to take action against these unfair sales practices.

White Financial Services managing director Daniel White said such actions contravened the consumer code for home builders, which was updated this year.

This update included additional guidance stating developers can’t force clients to use their own legal or financial services.

White says such this code is often ignored. “In one case a client was told they would lose £6,000 of additional incentives if they didn’t use the in-house mortgage service.”

White says: “This has been a problem for quite a while, but brokers are starting to be more vocal about it.”

This has the potential to become a bigger issue in future, as the new build market expands, thanks to increase funding for Help to Buy, and Government proposals to boost house-building in the UK.

Libra Financial Planning’s mortgage consultant Sebastian Riemann adds: “Insisting buyers get qualified by the developer’s broker isn’t illegal as such, but if they are then pressurised into using this service this becomes a conditional sale, which is against the rules.”

Riemann points out that this is a difficult practice to stamp out. “A lot of buyers are quite naive in this field and as long as they get their property with a mortgage their perceived needs are usually met. Often this isn’t the best outcome for them, but they are not necessarily aware of this.

“It’s more prevalent with first-time buyers or buyers using schemes such as Help to Buy and shared ownership.”

But L&G Mortgage Club’s new build manager Craig Hall says that in his experience there were good reasons for builders to work with a preferred broker.

“New build is a specialist market. There are fixed timelines, and pressure to ensure applications are completed accurately and on time.

“In addition, lenders will have limited exposure to any one site. By using one broker, or a limited panel, it is easier for builders to keep track of how much lending is being provided by key lenders.”

He adds that while developers may have their own preferred broking service they cannot pressurise consumers to use these services.

Hall says: “There is hearsay in the market about this happening, but I’ve not seen any factual evidence of it. The builder broker relationship seems to be working well as a rule.”

However, he points out that this relationship will be scrutinised by the FCA as part of its competition review, which is due to report next Spring.

But not all mortgage brokers agree. White adds: “There are local developers who we have good relationships with, and who play by the rules. They may recommend their own services, but no-one is obliged to use them.

“However, we’ve seen other cases where pressure is brought to bear on clients.

“How can mortgage brokers compete on a level playing field, if developers are telling clients they may lose the property if they don’t use their own in-house mortgage services?”

White claimed that in some cases these in-house services aren’t always able to source suitable mortgage deals. He says: “We’ve seen examples where home buyers are self-employed, or have had a poor credit history and the broker hasn’t been able to place a suitable mortgage deal.”

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  • ivona lord 19th December 2017 at 4:28 pm

    We have had clients pressured into using the developer’s broker and solicitor. In all cases, they were told that they would not receive available discounts, incentives or the opportunity to part-exchange unless they did so. Restricting financial advice and freedom of choice in such a way is an absolute disgrace and may leave the poor buyer at a disadvantage as they are unable to choose genuinely impartial advice. Name and shame please!

  • Richard Scott 19th December 2017 at 2:10 pm

    There seems to be quite a variation in approach. Two major developers in my town are poles apart. One offers their linked broker but accepts clients own choice without question. The other though insists on theirs validating as a minimum. They even wanted to validate my own daughter when she was considering reserving a plot. The irony is that the linked broker is a member of the same network as me. This particular developer is very much lead by their own sales approach that means they want everything within their link. A recent case I placed when the linked broker couldn’t, despite using the same lender panel. And further I have had to ensure the developers solicitor got back on track for a completion this Thursday. Finally, on the subject of developer’s solicitors I currently have a first time buyer HTB case, where the HTB ATP has been extended to the max and expires tomorrow and the mortgage offer which has been extended to Jan 20th 2018, but the solicitor refuses to communicate with my buyer’s solicitors to arrange exchange and completion within the required timescale. So the chances we will have to redo the HTB ATP in full again and potentially redo the mortgage application in full again.
    So much for the comments that the linked brokers and solicitors provide the best path to completion.
    Personally, I think that developments not adhering to the revised code should be named and shamed, because my impression of new build developer staff is that “It’s there way or not at all” irrespective of the impact on the buyer who should be having an enjoyable experience buying a new home.