This guide was last updated 13 October 2022
With every system that involves finances, there will be people attempting to manipulate that system. Mortgages are no different. We have written this blog so that you can be confident that the buyer/seller you are dealing with will not compromise your sale due to illegal activity, or worse – get you into legal trouble yourself. We also want to avoid the possible scenario of accidentally committing mortgage fraud by giving the wrong information or omitting certain details.
Mortgage fraud is 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 likely 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.
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, that can even correspond with the bank statements. 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 in order 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 their 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’re being thorough when declaring all your 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 the deal they offer the applicant. By choosing to conceal (or even accidentally concealing) all your debts, you are defrauding a mortgage lender into giving you a better mortgage.
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.
Mortgages are complicated enough without having to worry about being arrested for fraud due to a mistake, and selling a property can be overwhelming even if you are not being pressured into declaring false information. However, misleading or lying to a mortgage lender is a criminal act, so it’s crucial that you get educated on the legalities and recognise the signs of someone else attempting to commit fraud. If you have any questions, please feel free to contact Coreco and we’ll be happy to help where we can. It’s in our best interest to give you honest advice, and not just because brokers who fail to identify mortgage fraud could face prosecution, but because our reputation as a trusted mortgage broker is very important to us; we want to see you move into your new home as smoothly as possible!
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