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.”