People are much more aware of insurance or benefits fraud, but there is a less publicised form of fraud that rears its ugly head, particularly in times of economic uncertainty – mortgage fraud.
According to the Credit Fraud Avoidance System this type of fraud went up by almost a fifth last year with an 18 per cent rise in falsified mortgages.
Meanwhile the City of London police has reported a 72% increase in cases of financial fraud largely driven by a jump in mortgage scams over the previous year.
Simon Bevan, head of fraud services unit at BDO Stoy Haywood, estimated that mortgage fraud cases had risen from £13m in 2008 to almost £200m in the first half of 2009. "This is not a figure showing how much fraud was out there, it's just the tip of the iceberg," he said. "We are six months away from investigations starting in earnest because the lenders haven't got round to tackling it yet.
Bevan believes that domestic mortgage fraud could top £1bn by the end of the recession and commercial property mortgage fraud could reach £5bn.
The Financial Services Authority has banned 65 mortgage brokers in the last three years for mortgage fraud and levied fines totalling more than £1m.
How Does Mortgage Fraud Work?
There are several different scams and some might have a direct impact on even an honest homeowner.
Gangs Who Inflate House Prices – One scam is generally perpetrated by gangs who buy a property, typically in a large development, at a deliberately inflated price.
The purchase price then appears on the Land Registry website, artificially driving up the value of homes in the development or immediate area as estate agents and surveyors use the Land Registry as a major part of their valuations. Based on these falsely inflated valuations, the fraudsters then obtain inflated mortgage applications on other homes, often in the same development.
So, if a property was valued at £250,000 but was only actually worth £200,000, the gang could pocket the spare £50,000 to fund further deposits or to remove offshore.
Such gangs often employ equally dishonest solicitors and surveyors to ensure that the funds from the lender are skimmed off the top.
This scam primarily affects lenders but could artificially drive up property prices in your area or development. If as a home buyer, you were unlucky enough to buy a property in the same development as a gang, you may have paid over the odds for your property and have a mortgage for more than the property is worth
Off-Plan Property Scam - Another scam involves investors who are convinced by fraudsters to buy new-build property off-plan.
This scam is relatively simple in that the homes would be presented as high-specification and priced as such, but would in fact be built on the cheap, leaving investors and lenders with properties worth a fraction of the mortgage. If you are a property investor it is worthwhile to investigate the builder thoroughly before buying anything off-plan.
Lying on Mortgage Applications – for the average homeowner, this type of mortgage fraud is the biggest risk. With this type of fraud, crucial information provided in the original mortgage application form - such as salary - is inflated or simply made up.
You might think, “But I’m not dishonest, I would never lie on a form!” However, in many cases it was a mortgage broker who was behind the scam, often without clients realising.
“If borrowers lie on a mortgage application or provide fraudulent documentation, like fake bank statements or wage slips, lenders could choose to retract their mortgages or pursue cases through the criminal courts,” warns Sarah Bailey, of City watchdog - the Financial Services Authority (FSA).
“This doesn’t usually happen, but it’s important to take steps to avoid it, not just in your own work but also by opting for a reputable broker.”
The FSA has banned 95 mortgage brokers in the last four years for mortgage fraud.
How to protect yourself from this type of fraud:
Before visiting a mortgage broker check that they are registered with the FSA. The Register is online at www.fsa.gov.uk/Pages/register/index.shtml or call 0845 606 1234. Through the online register you can check the broker’s history by entering either the company name of the mortgage broker, or the individual. This will bring up any disciplinary history. Be warned that if you do not use an FSA-registered broker you will not have any recourse if mortgage fraud by an agent is uncovered.
Don’t lose your home, use a FSA registered broker. Call Northfields on 0208 840 6666 for a referral to an FSA registered mortgage broker who can provide you with free and honest advice.