Welcome to our latest Financial Crime Awareness Bulletin.  This bulletin considers recent developments and trends in the Financial Crime sector and is designed to bring them to your attention.  It is intended to draw your attention to key topics affecting the industry, highlight important issues and changes to legislation, and re-emphasise the need to remain vigilant to the ongoing developments and trends. which can lead to financial crime.

Mortgage Fraud

Providing a UK mortgage lender with false documentation is a serious form of mortgage fraud and a criminal offence, it is also fraudulent to withhold information from lenders related to property transactions.

What is mortgage fraud?

Mortgage fraud occurs when mortgage applicants mislead a firm or a private lender through the mortgage process. This could include providing falsified documents, giving misleading or incorrect information, or omitting important information. Common examples of these types of fraud include over-valuing properties, overstating your income, or taking out mortgages in the name of an unsuspecting or deceased person.

There are two main kinds of mortgage fraud: soft fraud and fraud for profit. The former includes much of the fraud mentioned above and refers to misleading a mortgage lender in order to increase the chances of being approved. Fraud for profit is more organised and usually involves tricking a lender into providing more than 100% of the property value. The latter is what most people think of when they think of mortgage fraud, but it’s soft fraud (sometimes called ‘opportunistic fraud’) that is much more common.

False Documentation

Probably the most common version of soft fraud is false documentation. Technological advancements have made it easy enough to forge documents, and it is possible to buy fraudulent documents, including bank statements or payslips. Payslips are a popular choice for mortgage fraud because a higher earner will have a better chance of having a mortgage approved and may also be offered a better deal.

However, advances in technology have also made it easier to identify fraudulent documents and to double check salaries and valuations. It is certainly not worth falsifying documents to get a better mortgage deal. There are many examples of people falsely inflating their income, thinking ‘it’s what everyone does’, but that isn’t a justification that will sit well with the authorities. 

Failure to Disclose Liabilities

Just like inflating income, the failure to disclose certain information for a better chance of application approval is one of those things some applicants think of as a little white lie that doesn’t harm anyone. However, it is fraud, so be sure you are being thorough when clients are declaring loans and debts. People lie about this because having fewer debts will make a mortgage application more likely to be approved. It also lowers the debt-to-income ratio, which is a key factor for lenders when considering which deal they offer the applicant. By choosing to conceal (or even accidentally concealing) debts, this is defrauding a mortgage lender into providing a better mortgage.

Quick Sale and False Price Sales

If you are considering selling your property, be wary of anyone offering a quick sale. Some homeowners find the prospect of a quick sale attractive because it can make the sale less stressful or help to avoid repossession, but not every buyer offering these opportunities is legitimate. One technique fraudsters use is to offer an immediate sale of a property for a discount (between 20% and 35%) but then ask the buyer to officially claim the property was sold for the full market value rather than the discounted price. Fraudsters do this in order to borrow the full value of the property without needing to put down a deposit. For instance, if the market value of the property is £500,000, the buyer might only pay £400,000 in exchange for a quick sale. If the mortgage lender is told the property was bought for £500,000, then they may be willing to lend £400,000 because they assume the remaining £100,000 (20%) was put down as a deposit. This gives the buyer a better mortgage deal without having to put down a deposit.

It’s important to remember that selling a property at a discounted price is not illegal or fraudulent, but disguising the fact to the lender is, so if someone asks to do so, they are asking you to break the law.

Misleading or lying to a mortgage lender is a criminal act, so it is important to recognise the signs of someone attempting to commit fraud.


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