Buy to Let Mortgage Fraud

by Mark Johnston

Mortgage fraud accounts for more than half of all fraud committed against the financial sector.

This type of fraud occurs when individuals defraud a financial institution or a private lender through the mortgage process.

Data has shown that the incidence of mortgage fraud through falsified information which has already been uncovered is on the rise. Experts believe that this trend remains upward and it could also be some time yet before the peak is seen.

The National Fraud Authority (NFA) estimates that £1 billion will be lost to mortgage fraud in 2012 alone.

A report states that despite the reduction in lending there are still approximately £12 billion worth of mortgage loans approved every month making it attractive to fraudsters.

However some experts believe that calculating a reliable estimate of mortgage fraud has been challenging for both the National Fraud Association (NFA) and the mortgage lending community so this figure could potentially be much higher.

Mortgage fraud can be initially split in to two distinct categories:

–          Large scale mortgage fraud; this often involves several different properties and is often committed by criminal groups rather than an individual.

–          Opportunistic mortgage fraud; this often occurs when incorrect or misleading information about individuals identity, income, employment or other debt obligations is given.

Nick Mothershaw, the director of identity and fraud at Experian, stated “more than 90% of mortgage fraud tended to originate from genuine individuals misrepresenting their financial situations”.

Therefore contrary to what some people may think, inflating incomes on a mortgage application is still treated as mortgage fraud.

Currently the buy to let property market is extremely susceptible to mortgage fraud, this is partly due to the fact that buy to let mortgages usually do not require any proof of income and is rarely checked. They rely on self declared income.

The Financial Service Authority (FSA) is therefore worried about the fraudulent use of buy to let mortgages by some people who can not obtain an ordinary residential mortgage.

With self certified mortgages all but abolished and the availability of interest only mortgages severely restricted, many experts now believe that this type of fraud may grow as more and more potential borrowers are ‘shut out’ of the property market.

The industry regulator stated “we are seeing anecdotal evidence of unregulated buy to let mortgages being used fraudulently as a replacement for regulated residential mortgage contracts”.

Property law expert Paul Marsh, president of the Law Society, said “in a buoyant property market all the buyer wants is to get the key and all the banks want is to sell the mortgage. The solicitors can not cross examine all their clients”.

Mortgage experts feel that this type of fraud is practically due to the fact that an applicant for an ordinary residential mortgage is liable to various strict checks and restrictions whereas these are not the same as those in place for buy to let borrowers.

The Financial Service Authority (FSA) has recently published a guide to financial crime which shows examples of how lenders can help to reduce the risk of mortgage fraud.



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