Mortgage fraud continues to be a problem across the UK, and recent figures released by the National Fraud Authority estimate that it now accounts for around 2.5 per cent of the £38 billion that is lost to financial criminals every year.
The ways in which criminals are defrauding both lenders and brokers are wide and varied. On the one level, there are those that will simply provide false income or employment information in order to obtain a higher mortgage than they are entitled to.
Then there are large-scale fraudsters who will take more sophisticated measures to secure a property or, more often than not, several properties; buy-to-let properties being particularly susceptible.
There is usually a pattern to this type of fraud as criminals will start by falsely increasing the value of a property before taking out a mortgage for the full, inflated value. These properties will often be used for other criminal activities and will be left in a state of disrepair whilst another mortgage is raised with another bank. The fraudsters will then essentially use this next mortgage to ‘buy’ the property from themselves at another inflated rate, leaving them with a tidy profit.
This process may be repeated several times until one bank finally forecloses on the property, only to find that it is worth significantly less than the current mortgage.
Fraudsters may also prey on those people that need help with debt and are looking to release the equity in their property. In these circumstances criminals will act as a third party financial institution operating an equity release scheme, whereby homeowners effectively sell their property to a third party who then rents it back to them on the understanding that they will have a chance to buy back the property as and when their financial situation improves.
However, when criminals are acting as the third party, they will take out a mortgage on the property, again at an inflated rate, and pay out the loan amount that represents the equity in the property. At this point, no more payments will be paid towards the mortgage and the criminals will pocket any money being paid to them by the original homeowner.
The original homeowner, who is now a tenant, will most likely be unaware of this until it is too late and the bank seeks to repossess their property as no mortgage payments have been made. Unfortunately, eviction is a real possibility in these circumstances as the original owners, who will have looked for an equity release to help with their debt problems, will find it impossible to buy back the property as the value of the mortgage has been inflated and is well above what they were originally paying.
Fighting Fraud Together is a new initiative that has been launched by the National Fraud Authority to encourage financial organisations to share their data and intelligence in a bid to detect and crack down on fraud or, ideally, to prevent it.
So far, 37 organisations have signed up for the scheme, including the Council of Mortgage Lenders and the Building Societies Association, and intelligence is to be shared across many other organisations including the National Fraud Intelligence Bureau.
It is hoped that this sharing of information across the public and private sector will help to curtail the seemingly never-ending problem of mortgage fraud.
Article written by Les Roberts, freelance journalist and content writer for moneysupermarket.com