Star letter: Still more to be done in the battle against fraud
There are few constants within the mortgage market but attempts at fraud are certainly one of them. Despite all the deterrents and the measures put in place by stakeholders, you can guarantee there will always be those willing to chance it.
A quick look at recent news stories reveals a variety of fraud-related activity. Thankfully, the industry is now far better at both catching the activity before it can succeed and ensuring that the perpetrators of any fraud get the punishment they deserve. However, practitioners can do more to help themselves.
Take a recent case where fraudsters were selling properties between themselves, inflating the values with no deposit changing hands.
The point was to extract money on the security and it seems the lender was not carrying out independent checks or due diligence on the solicitor firm. If it had, the solicitor would have been obliged to declare these were ‘back-to-back’ transactions between connected parties, and the fact there were no deposits would have come to light.
The fraudsters were also inflating the rental income levels in order to get a bigger mortgage.
This is a prime example of poor lending practice. A lender doing its job properly would have asked for a valuation and a sustainable rental valuation from its trusted valuers, which would have shown immediately in this case the over-valuation of both property value and rental income.
It is not rocket science but undoubtedly would have drawn serious attention to these cases and probably stopped the fraud from taking place.
Lenders have to be better than this. We have come to market absolutely focused on using every method at our disposal in order to combat fraud – from utilising the technology available to simply carrying out basic checks that would highlight such discrepancies.
If not all lenders can reach these standards then brokers should reconsider using them because, ultimately, the entire market suffers when fraud is perpetrated.
Bob Young, Fleet Mortgages
Affordability calculators are unwisely marginal
Last month, Mortgage Strategy reported a rise in the number of people searching for terms of 30 years or over.
The law of unintended consequences applies when it comes to offering ever-longer mortgage terms to reduce payments or increase borrowing capacity.
We already know that property price rises create specific problems for first-time buyers. But enabling them to borrow more and more money has the result only of increasing property prices until they once again go beyond reasonable affordability. Lending first-time buyers more does not mean they get a better home but assists in just increasing the value of the existing housing stock.
We saw this in the late 1980s, wherever larger multipliers had to be used to get the first-time buyer on the market until, ultimately, a change in economic circumstances brought the whole edifice crashing down.
The problem is that the introduction of the affordability calculator under the MMR has just exacerbated the problem. To some extent a multiplier attached an artificial restriction to the maximum loan and did not always take individuals to the maximum of disposable income. But the whole concept of an affordability calculator is designed such that a loan can be agreed or declined on a £1 difference and that is just too damned marginal to be prudent. Extending the term had no impact on the multiplier but it can have a significant impact on an affordability calculation.
To put this another way, I would say that lending policies of yore placed an artificial ceiling on property price increases but this has now been removed and it is for others to say whether this is a good thing. I believe it will lead only to a build-up of future problems
The other problem is that too many buy-to-let investors also want to buy in ‘natural first-time buyer territory’ where they can get a better income return. This inevitably causes undue competition in a small segment of the market and can only heighten the impact on values and therefore the need for the owner-occupier to borrow higher sums.
If we want a healthy, progressive market, something needs to be done to slow down property price increases at levels above salary inflation and I think the only ones with the power to do this are the lenders.
Unfortunately, I also think the greed at the top will prevent this from happening without third-party involvement.
I am not particularly pro more and more regulation but I do think it could be targeted far more effectively.