July 11th, 2013
It has recently emerged that an increasing number of contractors are being ‘bullied’ by building developers, who are pressurising borrowers into using the services of their preferred mortgage broker.
Experts have described a ‘marked increase’ in the number of building developers who are using ‘incentives’ in a bid to try and force potential home buyers into using the developer’s proffered mortgage broker.
By law, all buyers have the right to independent mortgage advice, and developers are therefore not permitted to force buyers to use their preferred broker. However, experts are warning that using an incentive, such as free floor installation, paying a percentage towards a deposit or covering the costs of Stamp Duty Land Tax for example, gives developers a loophole which enables them to put increased pressure on the buyer to use their own in house services for arranging the mortgage.
Specialists in the contractor mortgage field advise borrowers with more complex payment vehicles to approach these kinds of proposed incentives with caution. Taj Kang, Business Development Direct at Contractor Mortgages Made Easy says “A building developer’s in-house broker is highly unlikely to have sufficient knowledge of contractor friendly underwriting processes, so the most likely outcome will be that that contractor is placed with a bank and building society which is inflexible towards contractors in their methods of assessing income, making it far more difficult for the contractor to obtain the funding they need. The stress, hassle and frustration of an adverse lending decision would far outweigh the value of any ‘incentives’ offered to the contractor, so those looking to buy must be careful and do their research before agreeing to use a proffered broker service.”
The small number of contractors who are able to obtain funding via traditional ‘streamlined’ criteria, through salary and dividend draw for example, are advised to consider the impact of the incentive on their mortgage before agreeing to any proffered financial service. Kang commented “it is important to remember that any incentives offered by the developer must be declared to the lender on application. Often, the valuer will reduce the value of the new home by the value of the incentive, so if the developer offers the incentive to to pay a deposit of 5% on property valued at £400,000, the surveyor is likely to reduce the value of the property to £380,000. A reduction in the property’s value will cause a reduction in the potential mortgage amount, which could be fatal for the contractor.”
Kang advises that obtaining an agreement in principle from a specialist is the best way for a contractor to ‘dig their heels in’ at the first sign of any pressure from their building developer. “Seeking guidance from a specialist at the outset will enable the contractor to obtain an agreement in principle based on their full contract earnings. Approaching the developer when you are armed with an agreement in principle will ease any pressure that they may have otherwise put on the contractor to use their own service, and minimise the risk of an adverse lending decision later in the process.”
Article By: Jon Shields, Media Executive at Contractor Mortgages Made Easy
Media Contact: Raman Kaur, Public Relations Manager
Tel: 01489 555 080