Article by Richard Catlin - 15th July 2009

Don't Let Mortgage Application Fraud Damage Your Credit File

The Council of Mortgage Lenders (CML) reports that instances of mortgage application fraud are on the increase, as a growing number of consumers seek to get around tightened lending criteria.

The CML, which represents most UK mortgage lenders, and which was born from the need to combat the massive mortgage fraud rings of the 1980s, should know better than most. It says that exact figures are not available, but most definitely there has been an increase in mortgage fraud attempts in recent months. The most common type of fraud involves exaggerating income details.

That is one of the easiest frauds to spot. Mortgage lenders are able to compare your stated income with the income you have said you have earned on other credit applications made in the past to other lenders. The only likely result of exaggerating your income is the addition of a CIFAS fraud warning to your credit file – specifically that the application contained suspected “material falsehoods”. There’s no need for a lender to prove it, as it is only a suspicion, and both the income comparison database, and that part of the CIFAS database that contains fraud warnings, are not visible to consumers. They are not contained on the Credit Reports that you can see, even though they will be clearly visible to anyone checking your credit file for some time to come.

Lenders have also reported an increasing number of cases where consumers have failed to disclose previous addresses or existing unsecured borrowing in an attempt to avoid having them taken into account. Again, a lender will simply be able to see and verify this information through a linked address on an individual’s credit file, as this information is automatically reported, whether the previous address is provided or not.

Preventing fraud is clearly a good thing, as the cost of fraud losses are passed on to all other borrowers, but restricting credit is quite another thing. The Government looks set to do a U-turn on plans to restrict the Loan to Value (LTV) rate that banks are allowed to offer consumers, after experts warned that it could do more harm than good, and in particular could prevent first time buyers from entering the housing market.

Gordon Brown had asked the Financial Services Authority (FSA) to consider banning lenders from approving mortgages with a high Loan-to-Value (LTV) rate - the amount you borrow compared to the value of the property - generally regarded as greater than 90%. ‘High-multiple’ lending – where lenders operate policies to allow consumers to borrow more than the historically capped multiple of 3 times income was also questioned. Now that house prices appear to be stabilising in some parts of the country, and with the Government keen to see the housing market re-ignite, the stance is softening.

Overall mortgage lending in May was still considerably down on the levels seen in previous years. Approvals were 4% up on April’s figures and with lenders slowly but surely easing their lending policies, there are predictions that the coming months may see a further increase in approvals.

Whilst LTV restrictions are showing signs of easing slightly, it’s vital to ensure that your credit rating is in the best possible shape before applying for a mortgage. As well as determining whether you’ll be approved in the first place, your score will also determine to a large extent what rate you’ll be asked to pay.

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