CML and RICS in talks over bogus new build B2L valuations

The Council of Mortgage Lenders says it’s in talks with the RICS to remedy concerns over bogus new build buy-to-let valuations, as industry confidence in new build continues to waver.

Two weeks ago Portman subsidiary The Mortgage Works made an official decision not to lend on new build properties as a result of concerns that some developers were doing deals on the price of the property outside of the formal contract.

Matthew Wyles, group development director at TMW, explained at the time: In these cases the lender may be unaware of the actual price being paid and end up relying on a valuation which might in turn be based on erroneous assumptions.

There have also been rumours that buy-to-let specialist Mortgage Trust was no longer lending on city centre flats. However, Mortgage Trust denies the claim and and says it continues to assess each individual property on its relative merits as it’s always done.

Nicola Severn, marketing manager at Mortgage Trust, says: New build city centre flats are fundamentally a phenomenon of the speculative property market rather than buy-to-let. For this reason Mortgage Trust finds that few of their landlords apply for mortgages on this type of property.

Where an application is made on new build property this will assessed on an individual basis which would include our standard in house surveyors audit which is applied to all property valuations regardless if they are new build new or not.

Capital Home Loans is also rumoured to have now made the decision to reduce its LTV on new build properties from 85% to 75%.

Many in the industry view the sudden changes as a sign that confidence in the buy-to-let market is finally waning.

One source told Mortgage Strategy: There seems to be a sea change with specific lenders. If some lenders pull out then other lenders are isolated and appetite is bound to waver.

Headline grabbing reports from investment companies warning that the buy-to-let is finally going to pop have been a regular occurrence over the last couple of years. Like the rest of the housing market though, buy-to-let continues to do well.

Bernard Clarke, spokesman for the CML, says concerns over new build buy-to-let should not be confused with concerns with the wider market.

He says: There is some confusion here as to what the key issue is there isnt a particular problem with buy-to-let.

Its more of a valuation issue, that people then link to buy-to-let. There is some concern about valuations in some areas lenders need to be sure of the valuation of the property before they lend on it. Lenders continue to need to lend prudently.

The CML is in discussions with the Royal Institution of Chartered Surveyors and are looking for a satisfactory outcome.

But RICS says that current problem is a classic characteristic of a slowing market. When prices are rocketing, if a house is overvalued the market catches up quickly enough anyway. With the market stagnating, the problem quickly becomes apparent.

Andrew Smith, spokesman for RICS, says: If there are surveyors colluding with developers then RICS will investigate those individuals but we cant stop developers offering the cash deals and fairly large discounts that they currently are.

Lenders have to be sure about what theyre lending on. Because competition has tightened in the mortgage market some lenders may feel overexposed.