Self-employed mortgage fraud rises

A report on fraud published by Experian revealed the proportion of detected fraud cases for mortgages remains the highest out of all financial products, at 84 cases per 10,000 applications as at Q4 2014.

Mortgage Market Review affordability rules introduced last year mean that lenders have to take more steps to understand exactly what a person can reasonably afford, and this has made it harder for certain types of borrower, mainly self-employed individuals to get a mortgage.

Experian said this has resulted in a rise in the number of false mortgage claims made by some sole traders who have suggested they’re an employee of a business rather than the owner-manager.

Irrespective of the relatively low proportion of ID theft and third-party mortgage fraud, the credit firm said lenders need to remain vigilant given the sizeable numbers at stake.

The report said: “Reliable ID and document checking platforms are critical in helping cut the incidence of third-party mortgage frauds, particularly when dealing with brokers, intermediaries and external advisers.”

However, the level of detected mortgage fraud has actually declined slightly, from 87 frauds per 10,000 in Q4 2013.

While mortgage products are not generally targeted by identity thieves, they do remain a target for fraudulent individuals. In Q4 2013, first-party fraud accounted for 95% of all detected cases of mortgage fraud.

It now accounts for 96% of all detected mortgage fraud. Almost nine in ten cases (88%) of fraud were down to some form of misrepresentation by the applicant.

ID theft is comparatively rare in mortgages. It is dominated by first-party fraud and is mainly as a result of individuals bending the truth to try to get a mortgage that they most likely cannot afford.

Experian also announced the launch of a new interactive fraud dashboard, making it easy for those wishing to stay up to date with the latest figures. The dashboard shows fraud rates by financial product as well as regional hotspots and stand out fraud facts.

Meanwhile data published today by EDM Mortgage Support Services suggested almost a fifth (18%) of UK mortgage professionals believe that information exchange in their industry is either poor or very poor, leading to "significant risks for lenders and brokers" - including fraud.

Almost a third of the mortgage market said that the levels of fraud in the industry are currently either significant or very significant, warning that lack of transparency, especially in the audit chain across the complete application process, was also a big risk.

Joe Pepper, managing director of EDM MSS, said: “It is a year since the introduction of the MMR, which was designed to ensure that borrowers could afford the mortgages offered to them by lenders and that products suited their needs and circumstances.

"Without transparency in the application process, it’s difficult to see how lenders can prove that they have undertaken all the necessary stages to ensure that due process has been followed. The opportunity for fraud is also wide open if lenders and brokers are unable to carry out necessary checks and balances throughout the application process. From a regulatory as well as a customer experience point of view it’s vital to get the right platforms and processes in place.”