Mortgage lenders backed over selecting surveyors

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The restrictions that mortgage lenders impose on their borrowers' freedom to seek independent valuations of their houses will be broadly supported by a Monopolies and Mergers Commission study due to be published next week.

According to a report in today's Economist, the MMC backs the lenders' right to limit the choice of surveyor as a means of preventing mortgage fraud. This is despite evidence that the lenders' preferred valuers, including their own in- house surveyors, charge more than independent firms.

However, it is believed that the MMC will recommend that the Government should act to restrict some market abuses, such as favouring valuers that supply the building society or bank with substantial amounts of mortgage business. The Royal Institution of Chartered Surveyors has complained that this linkage discriminates against professional valuers who do not have an estate agency business.

Most of the leading lenders select the firm that carries out the valuation on a borrower's prospective home. In recent years, building societies have increasingly used their own estate agency chains to carry out the work. This has led to accusations that, while the housing market was depressed, they have turned to valuation fees for additional revenue - even when their own in-house valuers lack local expertise.

Extracts of the draft MMC report seen by the Independent show that the leading lenders levy higher valuation charges. On a pounds 50,000 house, the seven largest lenders - including the Halifax Building Society and Abbey National - charge an average valuation fee of pounds 97, as well as an administration fee that takes the average total cost to pounds 126. In comparison, more than 60 per cent of independent valuers charge less than pounds 97 and more than 85 per cent charge less than pounds 126.

But the MMC, which began its study last May, is sympathetic to the lenders' fears about fraud. 'The major lenders have emphasised to us that the main restrictions that they apply to the borrower's freedom of choice in the control of the use of valuers are required largely as a matter of prudential control,' the draft report said.

Of the more than 500,000 valuations that the leading seven lenders would handle each year, only 1,000- 1,500 involve alleged malpractice - less than 0.5 per cent of the total.

The report notes that some building societies do not make it clear when they make an administration charge, and even more do not specify the amount of the charge.

In one case, a police officer obtained a valuation from a firm listed on the Halifax's panel of preferred surveyors. Yet when he approached the lender for a mortgage, he was required to pay a further pounds 95 for another valuation from another firm because the first report was 'potentially biased'.