Head of Compliance Steve Adams reveals his highlights of one of our latest MI Online webinars. The event saw Paul Kane, NatWest Corporate Account Manager, explore not just the link between a rising BTL market and the potential for fraud, but what you as an adviser can do to protect yourself
Advisers love our MI Online series, delivering great ideas and useful insights into many areas of the industry. One recent webinar, hosted by NatWest Corporate Account Manager Paul Kane, explored the relationship between a rising BTL market and the potential for fraud. Paul also highlighted exactly what you as an adviser can do to protect yourself. In case you missed it, here are my key highlights from the session:
Most of the recent industry debate has been focussed on the future of BTL after the 2016 stamp duty changes and the upcoming changes in tax relief. This is understandable, considering the potential impact and controversy on its benefits.
BTL is also the fastest growing sector, supported by low interest rates and population growth during a shortage of housing that has put increasing demand onto the sector. BTL applications have increased dramatically since 2011, but it is still predominately an amateur sector, with 63% of landlords owning only one property, despite what some media outlets suggest.
But it is exactly this increase in business levels and public focus that both distracts from potential fraud and attracts certain dangers, which is why ensuring that a strong fraud focus is maintained within the industry has never been more important. Potential business can often mean potential for fraudsters as well.
It is important to know some key BTL fraud definitions beyond the broad meanings of Mortgage Fraud and Money Laundering. Mortgage Fraud is defined as “a crime in which the intent is to materially misrepresent of omit information on a mortgage application to obtain a (larger) loan than would have otherwise been obtained had the lender or borrower known the truth.” This can be split further into two categories: Fraud for property and Fraud for profit.
Differences in criteria means that BTL fraud is typically classed as Fraud for Property rather than Fraud for Profit, as it is quite normal for interest-only mortgages to be taken out on BTL. Attempting to get a mortgage on an interest-only basis may be a reason why people might be intending to misrepresent themselves and conceal their intentions.
This situation can attract fraud because interest-only is more common and affordability is not as strict on BTL, which may attract those wishing to not pay back capital on their mortgage. This can also attract organised criminals who are not interested in the property itself and simply want access to the lender’s funds.
There are also instances of Fraud for Profit, where professional, organised criminals engage in mortgage fraud simply to abscond with the mortgage proceeds and do not have a preference for a particular mortgage product. In any case, they do not have any intention of making repayments and will typically use false identities, sources of deposit correspondence and bank statements to support the application.
There are many ways in which advisers can protect themselves against potentially fraudulent activity. Undertaking due diligence is key to this, such as checking documentation and payslips from the applicant. Now that the days of poor quality photos and easily-identifiable obscurities have passed, advisers need to be even more vigilant to ensure they are able to clearly spot potential fraud. Knowing how license numbers are structured can be an example of this, as well as ensuring it matches with the other client details.
Checking the details on bank statements and knowing the expected format can also help confirm validity. There should always be a professional appearance to the statement, with no spelling errors, anomalies or suspect details, as well as showing the correct address as the expected residence.
Ask yourself: Do the credits match those on the payslip? Are they from the correct employer? Are they the right type of payments such as BACS etc? Does the activity on the statement match the current customer profile? Are they recent documents, and if not why can the applicant not provide a more up to date one?
Working with lenders, networks and each other is a really important step in protecting yourself against fraud. Also, if you have had business introduced to you, ensure that you know as much as you can about them and have asked the right questions to protect yourself. Have you visited their premises? How long have they been in business and what is their reputation? Does anything appear suspicious? In other words, fact find your introducer in the way you would your clients.
If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.