Mortgage Fraud: Understanding and Avoiding it

What is mortgage fraud?

Mortgage fraud is a criminal offence where either an individual or group misleads and defrauds a mortgage lender.

Lying to your mortgage lender to get a loan can get you prosecuted. Misleading a lender can be withholding or lying about vital information including details that mortgage lenders need.

People most often commit mortgage fraud to buy a more expensive property. It may be that they were not eligible for a bigger loan, or they could have been denied a loan entirely.

There are a few different types of mortgage fraud, and the situations vary.
 

Types of mortgage fraud

Opportunistic fraud

This is an individual’s mortgage fraud. It's usually committed by fraudsters who are looking for a higher mortgage than they can get.

You're committing mortgage fraud when you give misleading information or fail to give details you're legally required to disclose to lenders.

For instance, an individual might say that their earnings are higher than they actually are in order to borrow more money.

Opportunistic fraud involves purposeful misleading on the following details:

• Their income
• Their employment status
• Their debt obligations
• The value of the bought property
• Where they’re sourcing money to purchase the property outside of the mortgage
• The price to be paid
• If payments have been or will be made directly between the seller and the purchase

 

Large-scale fraud

Large-scale mortgage fraud is usually committed by criminal groups. It often involves fraudulent behaviour around several different properties – hence the ‘large-scale’ title.

Offenders commonly use the buy-to-let property market to commit this fraud. So, they might immediately resell properties at increased prices after purchasing. This is otherwise known as ‘property flipping’.

Or, they may use money from criminal activity to get a deposit and commit mortgage fraud in order to launder it.

Usually, large-scale mortgage fraud occurs around the following:

• Funds from criminal activity being put towards the deposit and, therefore, being laundered
• The purchaser taking out the mortgage without having any actual involvement in the property despite stating otherwise
• Falsely increasing the property value for a larger mortgage
• Cheaply buying properties with plans for renovations. A mortgage will be acquired later and payments will not be made

As said before, large-scale fraud is more likely to be committed purposefully by criminal groups rather than individuals. This crime is typically fraud for profit. But it’s useful to know every and all ways you must avoid committing the crime.

Risks of committing mortgage fraud

Mortgage fraud can catch up with you in nasty ways. Consequences both legal and personal are severe, and all are avoidable.

Risks from committing mortgage fraud include:

• A prison sentence ranging from 12 months to 10 years
• A fine
• Inflating your income can make you incapable of repaying future debt, resulting in the repossession of your home
• If you receive benefits, overstating your income can negatively affect them
• You can be blacklisted from home buying in the future

 
All in all, none of this is worth risking criminal charges or your future property purchasing eligibility.

Getting the right mortgage for you is no easy feat. But there are easier ways to boost your borrowing power and avoid being fraudulent.
 

Avoiding mortgage fraud AND strengthening mortgage eligibility

Mortgages are calculated by lenders to work for the buyer. It’s important to ensure you’re completely accurate with the information you give your lender. This is so that you don’t make yourself liable for mortgage fraud.

But also, to make sure you get a mortgage you can manage.

Sometimes the mortgage you're offered isn't as high as you'd like. It may be that it also isn't enough to buy the house you have your eye on. It's important to remember that purchasing any home is an investment.

If you’re keen on boosting your mortgage, there are several meaningful ways to go about it.

Before you approach a lender, follow these 6 steps:

1. Improve your credit score. Lenders will look into your credit history. This will convince a lender of your financial discipline and make them more confident in your ability to meet mortgage repayments.
2. Maybe you're due a raise. Lenders will usually give you 4.5 times your income as a mortgage. So, if you’re able to boost your earnings, you’ll boost your mortgage too.
3. Pay off any outstanding debts. Lenders will assess how much you already owe. So, the more debt you have, the less you’ll be able to borrow.
4. Reduce costs where you can. How you spend will be analysed by the lender whether it be holidays, bills, or lifestyle choices. The less you spend around, the better your chances of a higher mortgage become.
5. Optimise your accounts. If you’re self-employed, the lender will check your earnings over the past couple of years. Make sure all of your income is organised clearly to increase your borrowing potential.
6. Shut down unnecessary accounts. Lots of credit or debit cards, as well as hefty overdrafts, will tell a lender you’re not a reliable buyer. They'll then assume you're unlikely to follow through with mortgage repayments. So, close what you don’t need.

 
To know more about what you can borrow with a mortgage, speak to a mortgage advisor. You can receive free mortgage advice from Mortgage Advice Bureau via reallymoving.