Mortgage fraud is on the rise - how to guard against it
Before the credit crunch, mortgage fraud was rife. With an industry too busy to carry out proper rules and checks on applicants, self- certification mortgages became so widespread, they were nicknamed ‘liar loans'. Buyers, brokers and mortgage advisers were all able to ‘self-declare' earnings with little, if any, proof required.
Since then, of course, the world has been on a rollercoaster ride. And though it may seem in London,
in particular, that we're back to the frenzy of rocketing property prices, sealed bids and gazumping, the mortgage market is a more circumspect place, with stricter rules introduced in the Mortgage Market Review in April, and self-certification mortgages now extinct.
That doesn't mean the mortgage landscape is now free of fraud, however. A report by credit referencing company Experian last year shows mortgage fraud has been on the rise for six years in a row, with 38 in every 10,000 applications deemed to be fraudulent in 2013. And mortgage fraud exists in many different ways, says the Council of Mortgage Lenders, which has identified four main types.
1. APPLICATION FRAUD is when the buyer knowingly provides inaccurate or misleading information on their mortgage application.Trying to hide a poor credit history is a big one, or as Andrew Montlake from mortgage broker Coreco explains: "Lenders are most interested in anyone securing a buy-to-let mortgage on a property they actually intend to live in."
Application fraud is on the up as cash-strapped borrowers try to get funds but are thwarted by lenders' strict criteria, according to Experian, and that trend is set to continue now that the Mortgage Market Review has imposed stricter rules on UK lending.
2. IDENTITY THEFT when someone steals another person's identity, including their credit history, can sometimes lead to mortgage fraud – when that person then secures a mortgage on other people's houses with their new fake identity.
In some cases, that has led to innocent victims being evicted. Scammers often find their targets through public foreclosure lists or even by acquiring lists of delinquent borrowers – incredible as it is to believe that such information can be bought. In some extreme cases, homeowners can find that the scammers have used their identity to take out home-equity loans or even sold the home without the owner's knowledge. And it's not just individuals that fall victim. Famously, a few years ago, fraudsters tried to sell the Ritz.
3. REGISTRATION FRAUD occurs when the property you legitimately owned is changed into someone else's ownership, as registered by the Land Registry in England and Wales, the Registers of Scotland or the Department of Finance and Personnel in Northern Ireland.
This change of ownership allows the new registered owner to secure money against your property, if the change isn't picked up during the application process. In 2011, there were 26 payouts for fraud and forgery – and in 22 of these cases, the owner didn't live in the property, according to the Land Registry. So owners of empty properties or buy-to-let landlords are particularly vulnerable to this type of fraud.
4. VALUATION FRAUD is more complex. It can involve people not declaring information about discounts or incentives given by lenders which could affect the true property's price. Or it could apply to new-builds, especially off-plan properties where it's difficult to give a definitive value to a property.
As far as how much fraud takes place, the level isn't high. According to Tracey Carr, financial crime manager from Santander, it's probably less than 1% of all mortgage applications but as she points out:"This is still a substantial figure, although the good news is lenders are getting much better at picking up fraudulent applications."
How to protect yourself
The new mortgage rules introduced in April 2014 should substantially reduce the number of people who make false claims. But this won't stop the fraud entirely, nor will it prevent you as a homeowner or buy-to-let investor from being a victim of identity or registration fraud. So what can you do to protect yourself?
Well, due to the volume of cases the Land Registry and lenders' fraud departments have to deal with, there are several things you can do.
- Protect your identity: Sign up to one of the credit reference agencies such as Experian, Equifax or Noodle, so you will be alerted to any change in your credit score. And take care of what you throw out such as anything that could give away vital personal information – bills, bank statements or other paperwork with your name, address, and date of birth.
Another way in which fraudsters can get hold of your details is by sending unsolicited requests for information via phone, email or post. They may ask for your bank account details and any login details or passwords, but remember: banks and building societies would never ask for this level of detailed information, so you should never give it out to anyone. If you are suspicious, carry out checks on who has contacted you.
If you have any of your identity paperwork – a passport, for example, or driving licence – stolen, then report the theft immediately and request they are replaced as soon as possible. For more information on protecting your identity or if you think your identity has been compromised, visit Action Fraud (actionfraud.police.uk/fraud_protection/identity_fraud or call 0300 123 2040).
- Use a broker: If you need a mortgage and don't want to deal with a lender directly, always use a broker regulated by the Financial Conduct Authority. "Make sure you always see what the broker has submitted to the lender on your behalf," says Carr, "and if you are buying a property, ensure the agent has checked who the seller is and verified their true ownership."
- Sign up for alerts: Sign up to the Land Registry's Property Alert service, which sends an alert should anyone apply for an official search or if any applications are received against the property (landregistry.gov.uk/public/property-fraud, 0300 006 7030). This is particularly important if you own more than one property and leave it empty for any period of time or you have a buy-to let-investment and you're not visiting it frequently – or you're not there to see who is
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
An off-plan property is one sold to the buyer before it has actually been built and so the prospective buyer relies heavily on architect drawings, scale models and the assurances of the property developer in order to “see” what they’re buying. For investors or speculators, in a rising market, buying off-plan means you buy at this year’s prices and, when you take possession, the market value will have increased. The biggest risks with off-plan are the developer will go bust or not complete the project or that the market will fall and the completed property will be worth less that the agreed purchase price.
Your credit score is a three-digit number (ranging from a low of 300 to a high of 850) calculated from the information in your credit report. Your credit score enables lenders to determine how much of a credit risk you are. Basically, a low credit score indicates you present a higher risk of defaulting on your debt obligations than someone with a high score. If you have a low credit score, any products you successfully apply for will carry a higher rate of interest commensurate with this risk.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.
From the Yiddish gezumph, meaning to cheat or overcharge, it describes the practice of a seller accepting an offer from one potential buyer but then accepting a higher offer from another buyer. In England and Wales, until contracts have been exchanged, the sale agreement is not legally binding and even though the original buyer may have spent considerable sums on the conveyance process, they have to either offer a higher price or risk losing the purchase. You can take out gazumping insurance where for a one-off premium of around £100 you’re covered for search fees, surveys etc up to £1,500 if you are gazumped by more than £1,000.