 Lenders are worried that mortgage fraud may become more common |
Mortgage lenders have called for tighter rules to stop possible mortgage fraud involving the sale of newly built city-centre flats. The Council of Mortgage Lenders (CML) said that a slowing market could tempt some developers into offering greater "incentives" to potential buyers. Deals such as cash-back offers, the lenders insisted, might inflate the headline value of a property. And that could see them being duped into granting excessive mortgages. Bad news The warning of potential problems came in the CML's fortnightly publication News and Views. "In recent years, discounts and incentives have had the effect of making the real value of new homes less than transparent," it said. "This is bad news for genuine buyers and for lenders. "Buyers may find themselves with a mortgage worth more than the property's value, while lenders may find themselves exposed to fraud and the risk of loss," it added. With prices now falling in many parts of the country, lenders are concerned that they may be tricked into offering mortgages that are too big, due to the sales tactics of developers desperate to offload their recently built flats. The CML pointed to the substantial incentives that can keep the headline sale price of a property unchanged, while reducing the actual cash needed by a buyer to go through with the deal. Among the things it is worried about are the paying of legal fees and stamp duty, cash-backs, offers of free holidays, the supply of white goods or even the arrangement of reduced mortgage payments. Standards While professionals who do the conveyancing, typically solicitors, are supposed to tell lenders of any such deals, they will not be able to do so if the incentives are hidden from them.  |  Lenders are concerned this area has been targeted |
Concern over this problem was expressed last week by the Financial Services Authority in its Financial Risk Outlook. Bernard Clarke, speaking for the CML, said it wanted developers to sign up for the codes of practice that currently applies to both solicitors and valuers. "We want developers to uphold similar sorts of standards," he said. He conceded though that, so far, it had not been a widespread problem. "We don't think there is a lot of this going on," said Mr Clarke. "But lenders are concerned this area has been targeted."
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