I talked last week about lender expectations on business quality and the steps you can take to keep safe, so I wanted to use this week’s update to go into a bit more detail around scheme abuse and fraud.
Consider this:
A young married applicant, FTB, buying a 4 bedroom property, in sole name.
OK, so it’s a large house, but not that unusual. Maybe they are planning ahead for family? On the face of it a straightforward residential application. But:
On viewing the property on Rightmove, it showed 2 front doors, the description confirmed the property contained a self-contained flat/annex, clearly being purchased to let out. This applicant was working for one of the large banks on a high income. The house is not within a reasonably commutable distance.
Now that changes the complexion completely, this is almost certainly an investment purchase, at best a renovation project with intent to live in the home in the future. Either way, not a residential application.
The problem here is the additional checks were carried out by the lender (Accord) and not the adviser (fortunately not from our network!). The application was rejected and the adviser was implicated in submitting a fraudulent application. And, yes, lenders do view ‘scheme abuse’ as fraud.
False and inflated income is likely to remain the main issue on mortgage applications, especially given that the rule changes, as a result of the MMR, have tightened affordability /lending criteria potentially making it harder for applicants to borrow the required amount. Feedback from lenders has identified some other emerging developments, which include:
- Applicants not declaring monthly commitments and dependants to improve the view of their outgoings.
- Covert BTL’s, like the one in the example, being rapidly on the increase with property investors wanting a better interest rate, or not being able to obtain a BTL product due to insufficient earned income or them not having a substantial deposit available.
- An increase in young, high earning professionals, purchasing their first property as an investment and not as main residence but obtaining a residential mortgage at a good rate when the intention is to let or use the house as a HMO from the outset. The temptation to take advantage of high rental yields that are available in certain areas of the country is leading to an increase in this issue.
Lenders are also telling me that they are seeing an increase of unscrupulous introducers submitting fraudulent cases to lenders often via legitimate brokers. These introducers often tend to be former mortgage brokers who have themselves been removed from a lenders panel, dismissed from their firm or network and now posing as ‘lead generators’.
It is the advising broker who takes responsibility for submitting poor quality cases and the danger is that this results in themselves then being removed from lender panels.
Coming back to the scheme abuse issue. We would ask you to remain vigilant and avoid being used for such transactions. To help you we thought it would be useful to have a document, the Buy to Let Declaration, that can act as a discussion point in your meetings and will potentially save you from being an unwitting ‘victim’ of such fraud. The Buy to Let Declaration is available now to download from the Right Adviser Document Library under customer declarations. There is a The Right Mortgage branded version for RIs and an un-branded version for DAs who wish to incorporate their own logo.
This document is not compulsory, but we think it would be good practice to use this in any situation where you think there is the potential for scheme abuse. As ever, when used, please attach a copy to The Key.
Using the declaration, however, does not preclude you from making your own checks, such as those the example at the start of this article; try viewing the property on the estate agents portal. Consider the area that the property is located (i.e. near a university, hospital) and whether the area is an investment property hotspot. Look at the commute to work on Google Maps and see if the daily journey would be feasible. All easy checks to do.
Use your knowledge and instincts and stay safe.
