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The
Money Programme uncovers massive mortgage fraud
BBC
TWO's The Money Programme has revealed a huge mortgage fraud with
brokers from some of Britain's biggest estate agents and financial
advice groups advising customers to break the law and lie about
their incomes to get massively bigger mortgages.
And
it shows how the illicit cash raised by this method has been pouring
into the housing market, boosting prices and leaving many people
risking financial ruin.
An
undercover investigation for The Money Programme Mortgage
Madness (Wednesday 29 October, 7.30pm, BBC TWO) shows adviser
Fraser Wright at Townends saying: "I've done it for myself
and for my personal friends. Just remember what you put on the form
and make sure the mortgage is always paid."
Mr
Wright told the programme's undercover researcher he had claimed
to have earnings of £100,000 a year on his own mortgage application.
"It's
a walk in the park," he boasted. "They don't know."
Martin
Ridge, a mortgage adviser recommended by Haart, told the undercover
researcher to state their income as £56,000.
He
said: "It is lying, but that's what you have to do."
Dr
Desmond Fitzgerald, an expert in financial markets who advises financial
institutions and regulators, said: "Over the past two years
most forecasters, including myself, expected the housing market
at best to stabilise and more likely to fall.
"Instead
it's powered ahead. Now clearly if there is this extra flow from
these fraudulent self-certified mortgages, that will push hundreds
of millions of extra cash flow into the housing market.
"So
you get this sort of self-feeding frenzy, a real bubble effect."
Undercover
researchers from The Money Programme posing as first time buyers
talked to advisers recommended by ten estate agents in Ealing, West
London.
Nine
encouraged them to take out self certified mortgages where
borrowers simply state their incomes and lenders promise not to
check.
All
nine advised the buyers they would have to lie about their true
income to secure a larger mortgage, raising the amount which could
be borrowed from around £150,000 to £220,000.
In
Manchester three out of seven mortgage advisers in Didsbury recommended
exaggerating the researchers' incomes.
Tony
Shaw QC, a criminal lawyer specialising in serious fraud, told The
Money Programme that borrowers could be in serious trouble if caught.
He
said: "A person who fills out a form knowingly entering a false
statement about his income or his occupation is at risk of going
to prison. It is a serious offence."
For
mortgage brokers who advise borrowers to lie, the penalties could
be even more severe.
The
Money Programme found that during the investigation brokers advised
the undercover researchers to lie on applications for self-certified
mortgages from, among others, The
Bank of Scotland, The Mortgage Business and Birmingham Midshires.
All
three are part of the Halifax Bank of Scotland Group Britain's
biggest mortgage lender.
The
Money Programme visited three Birmingham Midshires high street branches
in the West Midlands.
In
all three the undercover researchers were offered self-certified
mortgages far bigger than the official Birmingham Midshires three
and one quarter times salary multiple allows.
The
company has since suspended three mortgage consultants.
In
the main Birmingham Midshires City Centre branch, HBOS adviser Gurjit
Sandhu said he had helped a client who wanted to buy a £400,000
house.
Mr
Sandhu said: "His income was just about the early £30,000s.
It wasn't exceptionally good. He was having a mortgage at £340,000
and to borrow that I showed he had an income of £104,000."
Other
brokers caught on camera advising the practice were recommended
by Rolfe East, Townends, Kinleigh Folkard & Hayward, Bairstow
Eves Countrywide, Haart, Barnard Marcus, JAC Strattons, Northfields,
Roberston Smith and Kempson. All recommended the self-certification
route.
Dr
Fitzgerald said people not only faced criminal sanctions but also
the prospect of financial ruin.
"If
we have a six times multiple or more then you end up effectively
paying 50% or 55% of your after-tax income in mortgage repayments
and a lot of people would find that very difficult, if not impossible
to manage," he said.
In
the week before broadcast The Money Programme informed all those
who had been secretly filmed about the programme and the allegations
in it.
Many
of the estate agents and financial advisers the programme approached
have launched enquiries.
The
Money Programme requested an interview with HBOS Chief Executive
James Crosby but he declined to be interviewed.
Notes
to Editors
Self-certified
mortgages: Self-certified mortgages were first introduced some 15
years ago to cater for self-employed people with erratic or difficult
to prove earnings who had problems obtaining a traditional mortgage.
At
first, borrowers' accountants were asked to verify the incomes people
claimed.
But
in recent years, with increased competition, these income checks
have mostly fallen away and now even salaried employees, with incomes
that are easily checked, can get a self-certified mortgage.
Most
self-certified mortgages require borrowers to put down a significant
deposit, typically 15% of the price of a property. This protects
lenders if borrowers default.
The
self-certification mortgages offered by most major lenders require
an income declaration to which a stipulated multiple is applied.
In
the case of the HBOS brand BM Solutions, it was 3.25 at the time
of researching this programme, the HBOS brand Bank of Scotland applied
a 3.5 multiple.
There
is a small number of self-certification mortgages which do not require
any statement of income.
The
lenders in this case undertake what they call an "affordability
test" to see if a borrower is likely to be able to meet the
repayments they are taking on.
Sales
of self-certified mortgages have been growing on average at over
27% a year over the past five years.
Source:
Datamonitor Study
The
Ealing Research: Posing as first time buyers, researchers from The
Money Programme team visited ten estate agents in Ealing, West London.
They
asked for mortgage advice and, in every case, were referred to a
specialist mortgage adviser.
Many
of these advisers were connected to the estate agent through an
affiliated company. Others worked for separate companies.
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