told not to declare

Senior_Paper_Monitor

I have never seen such a list of bad advice on this forum (just a couple of exceptions to that comment within the contributions) - you are being asked to commit mortgage fraud (an act which may prevent you ever obtaining a mortgage again !!)...

I quote:　

New build transparency via the CML Disclosure of Incentives Form
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Before the introduction of the Council of Mortgage Lenders’ (CML) Disclosure of Incentives Form (DIF) it was difficult for conveyancers and valuers to know the full details of discounts and incentives offered against newly built properties. This made it difficult to understand what net price the buyer was paying.

As a result, some buyers may have found themselves with a mortgage worth more than the property’s value, whilst lenders may have found themselves lending outside their normal criteria and as a result exposed to a great risk of loss. [/FONT]

[/FONT][FONT=Arial,Arial][FONT=Arial,Arial]An undeclared discount or incentive can cause the sale price to be inflated, skewing the loan to value ratio. This will reduce the amount of money the buyer needs to purchase the property, and the mortgage may even exceed the amount the borrower actually pays for the property. An example of the problem is as follows[/FONT][/FONT]:

[FONT=Arial,Arial][FONT=Arial,Arial]Sales price: £100,000

Mortgage: £95,000 (95% LTV)

Incentives: £10,000

Borrower actually pays: £90,000 to the developer

In this example, the net or ‘true’ sale price is £90,000 and the loan-to-value (LTV) is 105.6% (£95,000/£90,000), and the borrower will actually extract £5,000 cash from the transaction. It is the possibility to extract cash that attracted fraudsters to new-build properties in the period before the CML DIF was introduced, increasing the risk of loss for lenders.

The lack of clarity combined with the threat of fraud served to undermine lenders’ confidence in new build properties. As a result, many lenders have reduced the maximum LTV that they will offer on new build properties in an attempt to reduce this risk.

To help restore confidence, from 1 September 2008 lenders enhanced their instructions in part two of the Lenders’ Handbook. These changes required the receipt of the new CML Disclosure of Incentives Form from the builder/developer of any new build, converted or renovated property, before the Certificate of Title could be submitted.
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[/FONT][FONT=Arial,Arial][FONT=Arial,Arial]From 1 October 2011, builders/developers are being required to complete an updated version of the DIF. Version 2 of the DIF is being introduced to reflect changes in market practices and to provide greater clarity for valuers and conveyancers. It is available online from the Lenders’ Handbook page on the CML website: [/FONT][/FONT][FONT=Arial,Arial][FONT=Arial,Arial][FONT=Arial,Arial]http://www.cml.org.uk/handbook[/FONT][/FONT][/FONT][FONT=Arial,Arial][FONT=Arial,Arial]. [/FONT][/FONT]
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The form includes a total of 13 questions amongst which is the requirement to disclose full details of all financial and non-financial incentives and provide details of any third party interest in the transaction. The DIF was developed in conjunction with lenders, valuers and developers. [/FONT]

[/FONT][FONT=Arial,Arial][FONT=Arial,Arial]The use of the DIF is not restricted to the conveyancer. To reflect the changes brought about by the DIF, the RICS made related [/FONT][/FONT][FONT=Arial,Arial][FONT=Arial,Arial][FONT=Arial,Arial]changes [/FONT][/FONT][/FONT][FONT=Arial,Arial][FONT=Arial,Arial]to the Red Book and valuers are required to request a copy of CML DIF when valuing new-build property. The RICS have also produced further guidance for their members on valuing new build property. [/FONT][/FONT][FONT=Arial,Arial] [FONT=Arial,Arial]

This article answers some of the key questions that conveyancers may have about the DIF. [/FONT]

[/FONT]What changes were made to the Lenders’ Handbook?

[FONT=Arial,Arial][FONT=Arial,Arial]Section 6.4 of the Lenders' Handbook was changed in September 2008 to require the conveyancer acting on behalf of the lender to be in receipt of the CML DIF before they could submit the Certificate of Title. Part two of the Lenders' Handbook sets out each lender's specific requirements. Most lenders amended their part two instructions in time of the launch of the DIF, to reflect the new information available from the form.
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[/FONT]When is the new version of the CML DIF (Version 2) being introduced?

[FONT=Arial,Arial][FONT=Arial,Arial]From 1 October 2011, builders/developers will be required to complete Version 2 of the DIF. You can access the DIF from the [/FONT][/FONT][FONT=Arial,Arial][FONT=Arial,Arial][FONT=Arial,Arial]Lenders’ Handbook [/FONT][/FONT][/FONT][FONT=Arial,Arial][FONT=Arial,Arial]page on the CML website. [/FONT][/FONT]

How do I get the CML DIF?

[FONT=Arial,Arial][FONT=Arial,Arial]The CML DIF form should be supplied by the builder’s/developer’s conveyancer as part of the contract information pack they send to you.
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[/FONT][FONT=Arial,Arial][FONT=Arial,Arial]If the builder’s/developer’s conveyancer asks you for a copy of the form, you should direct them to [/FONT][/FONT][FONT=Arial,Arial][FONT=Arial,Arial][FONT=Arial,Arial]CML website [/FONT][/FONT][/FONT][FONT=Arial,Arial][FONT=Arial,Arial]where they will be able to download it. [/FONT][/FONT]

What happens if I do not receive the CML DIF?

[FONT=Arial,Arial][FONT=Arial,Arial]If you do not receive the CML DIF from the builder’s/developer’s conveyancer you will not be able to submit the Certificate of Title to the lender.

You should then request the form from the builder’s/developer’s conveyancer reminding them that you cannot complete the transaction without it.
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[/FONT]Do I have to send the CML DIF to the lender?

[FONT=Arial,Arial][FONT=Arial,Arial]The conveyancer will only be required to report the information on the CML DIF to the lender in line with the lender's instructions in part two of the Lenders’ Handbook.

For example some lenders only ask for incentives to be reported where they are in excess of 5% of the sales price. Some lenders may specifically ask in their part two entry to be sent the CML DIF in all circumstances.
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[/FONT]What happens if the purchaser renegotiates the deal with the builder/developer after I have received the CML DIF?

[FONT=Arial,Arial][FONT=Arial,Arial]We are aware that renegotiations can happen late in the day and that the builders/developers may offer further incentives to keep the deal alive. The builder’s/developer’s conveyancer should report these additional discounts/incentives to you as soon as is practicable and in any event prior to exchange of contracts/missives.

You will only have to report these additional discounts/incentives to the lender in line with their instructions in part two of the Lenders’ Handbook
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[/FONT]Will the builder/developer and their conveyancer be aware of the need to submit the CML DIF?

[FONT=Arial,Arial][FONT=Arial,Arial]The builder/developer should be aware of the DIF because they have to fill one out for each mortgaged sale and their conveyancer has had to pass this to the conveyancer acting for the lender. [/FONT]

[/FONT]My question has not been answered in this list, what should I do?

[FONT=Arial,Arial][FONT=Arial,Arial]We have also produced a [/FONT][/FONT][FONT=Arial,Arial][FONT=Arial,Arial][FONT=Arial,Arial]frequently asked questions [/FONT][/FONT][/FONT][FONT=Arial,Arial][FONT=Arial,Arial]document that has been written in collaboration with the HBF, HFS and RICS. This provides further detail on the background to the DIF, explains what details are required, who should complete it and who should receive it and when. [/FONT][/FONT][FONT=Arial,Arial][FONT=Arial,Arial]

1 October 2011
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davidmcn

dating_thoughts wrote: »

it does sound like the "extras" may in the view of inland revenue be an income so this extra money maybe something you'd have to report to them regarding tax payable.

They're not relevant for Income Tax, unless they're only being offered because the OP has been moonlighting at the building site.

Senior_Paper_Monitor

As for ....

Argghhh wrote: »

as long as the price of the house doesnt change it wont affect your mortgage offer, however if your solicitor is kept in the dark how will he have it put in the contract that these 6k of extras are included at point of exchange?

.... I quote just one mainstream lenders position:

Builder's incentives

The vendor of any new property is required to disclose the full value of any incentive in connection with the purchase of the property. Where we are notified of any incentives, the value of the incentives will be deducted from the purchase price to ascertain the net purchase price. The maximum loan and mortgage offer will be based on the net purchase price.




There are many lender's with similar policies and nearly all have limits of some sort (including none on loans over 85% LTV and specifically HTB).

kingstreet

The reservation will list all incentives, cash or otherwise.

As SPM says, the CML form is completed and handed to the lender's surveyor when the inspection is done.

Lenders have different policies on incentives. Some accept none at all, cash or physical, while others will accept cash incentives upto 5%.

I have no idea why the representative of a builder would be suggesting you withold information from a solicitor when all this will be clearly visible on forms the builder has to supply to its solicitor, the buyer's solicitor and the surveyor.

Pete9501

dating_thoughts wrote: »

Can you ask your own solicitor "off the record" just so you know where you stand and what additional risks you may be taking on?

No. The solicitor also works for the mortgage company and will be bound to work in their interest as well as the buyer.

Thankfully SPM has posted the correct advice.

The days of cash in brown envelops for chattels and other dubious accounting figures are well gone, thankfully.