Nipping Buy-to-Let Fraud in the Bud

In the September 2014 edition of Mortgage Finance Gazette, Jayne Coppinger,  Sales & Relationship Manager of Landmark Quest provided her expert view on Buy-to-Let fraud:

Jayne Coppinger

"Reports are coming through from the industry regarding an increase in the number of mortgage applications that are being fraudulently submitted as buy-to-let cases, since the more stringent affordability checks in the Mortgage Market Review rules came into action.

Applications are being identified where borrowers have requested a buy-to-let loan, with the intention of actually living in the newly purchased property.   This is a clear breach of the spirit of buy to let lending, and is a “fraud for property”, since this route is often used to buy properties which would not be regarded as affordable to the applicant when treated as a residential purchase.

While this currently appears to affect a relatively small number of cases, it is clear that this approach is being used to avoid the more meticulous MMR affordability checks. The FCA is alive to the risk, and during the summer, issued a warning to lenders to be more aware of this potential practice.

Some lenders apply similar affordability criteria for BTL cases as for residential mortgages and are therefore relatively immune to this kind of fraud, but for those who primarily rely on rental income to adjudge a loan’s suitability, there are definite risks that they are left open to this kind of “fraud for property”.

As part of our partnership with two lender clients, this risk was identified alongside their risk and fraud teams, and was shared with our technical team. The resulting risk mitigation strategy – Landmark Analytics’ “Let to Live” alert, went live into the Quest Q-Guard system 12 months ago, and has already seen great success detecting and preventing this misuse of BTL lending. We are seeing volumes of alerts generated increase post- MMR – which fuels our suspicion that the FCA’s concern is well placed.

We all have a duty to make the mortgage market an unattractive fraud target, and whilst this may not be a “fraud for profit” such as property club activity, it is in all our interests that the products offered to market are used for their intended purpose so that the market remains healthy and sustainable."

To access more industry articles on this topic, also visit the Mortgage Finance Gazette website: http://www.mortgagefinancegazette.com/fraud/nipping-buy-to-let-fraud-in-the-bud/