End of the 'liar loans': Taxman to check wage slips in a bid to beat mortgage fraudsters

Published 31st Aug 2011

People who bump up their earnings on mortgage applications are to be stopped in their tracks with the launch of a new scheme.

The Mortgage Verification Scheme is aimed at halting an estimated £1billion of mortgage application fraud committed in the UK each year.

It will let lenders to check income details declared in application forms against information provided in income tax and employment returns held by HM Revenue & Customs.
Detection: The new scheme will try to find the people who bump up their wages in a bid to gain a larger mortgage.

It represents a combined bid to slash the number of 'liar loans', where borrowers falsely inflate their earnings, and also cut back on applications where fraudsters deliberately target mortgage lenders and make off with the cash.

A wealth of cases of mortgage fraud have emerged following the slump in the housing market, as instances that had been masked by rising house prices have come to light.

Lenders say only those instances where lenders believe something dodgy is going on will use the system, however, borrowers whose details do not add up due to a mistake on their application may also end up being pulled in.


HOW IT WILL WORK:

Mortgage lenders will send relevant details of mortgage applications to HMRC.

It will occur when they have inadequate evidence of declared income and suspect fraud.

HMRC will then advise lenders whether or not the details correspond, which will inform lending decisions.

HMRC has set up a specialised unit to deal with the requests, which can be made by any lender for a fee of £14 plus VAT to cover costs.

Use of the scheme will be limited to cases where lenders reasonably suspect, following their own checks, that mortgage fraud may be taking place.

The CML said institutions will not rely solely on responses provided by HMRC to reach a decision where the lender suspects fraud.

And the taxman will also be able to use the system to check whether people have been understating earnings for tax purposes.

The initiative involving HMRC, the Council of Mortgage Lenders (CML) and the Building Societies Association will be launched on Thursday following a pilot scheme involving two UK lenders.

However, CML director general Paul Smee said lenders found the pilot scheme useful in helping them to lend responsibly.

He added: 'It has helped them to avoid lending in some cases where there is a risk of fraud, at the same time as giving them confidence about the borrower's credentials in some cases that they might otherwise have felt compelled to refuse.'

The National Fraud Authority recently estimated the cost of mortgage fraud at £1billion last year.

As well as aiding mortgage fraud prevention, the scheme will help HMRC to assess whether the information it has been given on applicants' tax affairs is correct.

It is not anticipated that the scheme will have any significant impact on the time taken to reach a lending decision.

Source: ' ThisIsMoney '

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