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Mortgage fraud awareness

News article

Publication date:

18 August 2020

Last updated:

18 August 2020


Esther Dijkstra, Director of Strategic Partnerships, Lloyds Banking Group

Exploring why mortgage fraud is an issue and how to action it.


As a mortgage professional, you play a vital role in the application process. By maintaining high standards of due diligence the disclosures you make at the application stage will be relied upon by lenders to deliver accurate and sustainable lending decisions for our customers. At the same time this approach will help to reduce the risk of fraud and financial crime, delivering increased consumer confidence and trust across the intermediary mortgage market.


Mortgage fraud in the industry

Mortgage application fraud can range from borrowers misrepresenting their position to secure a loan supported by false disclosures and documentation, to organised criminal rings defrauding the financial sector. In both instances, fraud may also be aided by complicit third party professionals.

The vast majority of mortgage application fraud seen today is what is termed as “fraud for housing”. Essentially, this is where applicants will either fabricate, embellish or conceal elements of their personal circumstances in order to obtain a mortgage loan.

To combat mortgage application fraud, UK lenders have invested in technology to strengthen front-end application fraud controls. This position is supported by lender panel management delivering continuous oversight of third-party professionals involved in the mortgage process. However, it is vital that lenders and intermediaries continue to collaborate to manage fraud risk.


Types of mortgage application fraud

  • False Income / Employment – By far the most commonly seen fraud type by lenders. This involves manipulation of the applicant’s genuine source of income or the fabrication of a false primary or secondary employment to circumvent lender affordability criteria. These applications are usually supported by false or altered documentation which and often of poor quality.
  • Scheme abuse – Where a borrower conceals their intentions for the property following purchase to obtain a mortgage product that would be otherwise unavailable. This is typically where a buy-to-let product is used to purchase a property that the borrower then resides in. Conversely, we also see instances where a residential mortgage product is used to purchase a property that is subsequently let without consent from the lender. 
  • Credit abuse – Non-disclosure of adverse credit which may affect a customer’s ability to borrow. This commonly involves a customer not disclosing a previous address where defaults or CCJs are registered.
  • Deposit fraud  This occurs where either no deposit is paid or where the source of deposit funds cannot be substantiated. For example, the source of deposit funds may derive from an unacceptable source and can be indicative of 100% lending, below market valuations, back to back or a distressed sale transaction.
  • Property hijack – Fraudsters take over the identity of the property’s genuine owner to raise funds against the security and then disappear with funds. This type of fraud commonly targets unencumbered properties where the owners reside elsewhere. Vacant or properties available to rent can often be targeted by the fraudster.


Consequences of mortgage application fraud

Mortgage fraud is not a victimless crime. It is important that intermediaries and borrowers understand the consequences of making false disclosures on a mortgage application. Where fraud is identified, lenders may not only decline the application but may also provide details of the transaction to national fraud databases to help prevent future fraud attempts. This action may impact on a customer’s ability to obtain financial products and services in the future.

Where intermediaries submit an application on which fraud is identified, this may prompt lenders to apply additional scrutiny to other business submitted and may ultimately lead to a review of the intermediary’s panel membership status.


What should brokers do where mortgage fraud concerns exist?

If you are concerned that a customer is attempting to commit mortgage application fraud, under no circumstances should you continue to submit the proposal to a lender.

Follow your firm’s internal procedure and obtain advice on how to complete and send a Suspicious Activity Report to your local compliance team.



COMING SOON: Good Practice Guide on Mortgage fraud

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This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.