In some cases, aspiring homeowners or homemovers struggling to pass a tougher affordability assessment post-Mortgage Market Review (MMR) are looking to buy-to-let mortgages as a way on to the property ladder.
The rise of the ‘savvy customer’, one who knows how to manipulate the system to get the mortgage he wants, was a common opinion among attendees at The British Mortgage and Protection Senate hosted by Mortgage Solutions.
Lenders and brokers could not agree, however, on how they should, or even if they should, collaborate to fight this threat.
This week we’ve asked our panel of experts if they think we need better communication between lenders and intermediaries over scheme abuse and what this should look like.
Debbie Bell, sales director, Kings Financial Services, wants more consistency in lenders’ requests on broker obligations when a possible case of scheme abuse is detected.
Pat Bunton, director at London and Country Mortgages, wants lenders and brokers to share information more openly and explains what his firm does to to detect and flag fraudulent cases.
Matt Lowndes, managing director at Corecco, considers the ideal scenario of a centralised database used by lenders and brokers and looks at the challenges this could pose.
Charles Haresnape, group managing director – mortgages at Aldermore, highlights the joint framework published by IMLA and AMI but says it is ultimately down to the lender to decide how they tackle instances of scheme abuse.
Debbie Bell is sales director, Kings Financial Services
Since the introduction of the FCA’s Mortgage Market Review we’ve certainly seen more in depth questioning from lenders on both residential and buy-to-let mortgages. As a result of this increased level of questioning lenders are now armed with more information than ever to highlight inconsistencies.
Together with the additional resources lenders have, scheme abuse can certainly be more easily identified and lenders have been keen to work with networks and help educate the intermediary market to ensure that lending quality is improved overall.
In working through these issues, lenders now recognise the strengths and weaknesses of their approach in managing relationships with their intermediary partners. With the new measures in place, lenders are quicker to report any suspicious activity.
There is still room for improvement though. In cases where the lender finds a consumer that has more than one residential mortgage, perhaps due to the consumer not realising what they have done constitutes mortgage fraud, we do need more consistency from lenders as to how to proceed. Some lenders advise the mortgage broker to leave alone and to not deal with the customer where others advise that the client should request consent to let before proceeding with any further business.
It would be helpful if lenders could adopt a common approach and give greater guidance on how an adviser deals with the client. This is clearly an area which can lead to dispute and controversy because of the limited information lenders will supply to intermediaries on this subject.
Pat Bunton is director at London and Country Mortgages
In the area of suspicious activity it has been my long held view that lenders and brokers should share information openly in order to combat those attempting to get away with scheme abuse. Lenders and intermediaries are after all bedfellows and mutually dependant so when one sees something they don’t like it is only natural to share that information in order to minimise the chances of repetition.
At L&C we have a warning flag that we can set on any case where we have reasons to doubt the information a customer is providing and where this is a suspicion as opposed to proven we always notify the lender we want to place the business with to alert them. On occasions these alerts have led to a case being declined often after the lender has checked Hunter but on others the all clear has been given.
Invisible flags (different to the adviser flags we set) on our systems alert our compliance team if any new case sharing the same characteristics is set up. This enables us to look at the case before we provide advice and has led to us refusing to deal with known miscreants. It is very clear that some consumers know their way around the system and seek to manipulate buy-to-let in order to step outside of owner-occupied affordability checks and it is vital that all market participants are alert to this and operate a zero tolerance regime.
The closer that lenders and brokers work together the better. In an ideal world it would be great if there was a database of known fraudsters that intermediaries could search before taking on new clients and to my mind any risks are massively outweighed by the benefits of driving bad eggs out.
Matt Lowndes is managing director at Corecco
Personally I’d love to see the day where we have a central database that can be accessed by a broker to verify a suspect client, similarly the broker should be able to report suspected scheme abusers in a confidential manner much like Crimestoppers.
If the lenders regularly update this database and a broker sees one of his clients listed it would enable both parties to build up a pattern of abuse. We don’t always know if the client is trying to deceive us but if there is doubt it would be useful to be able to flag this for others to see.
This centralised use of technology could really help the sector but how realistic is the chance of this happening? Could IMLA or the CML introduce such a scheme and would it cover every angle? Maybe not, but information sharing and training is a great tool in disrupting the fraud activity.
But I question if this information could ever be published. If scheme abusers know the industry is on to them they might not be so keen to get involved.
I guess in terms of risk an innocent client could be reported which may cause issues further down the line but a dodgy broker not being struck off is equally as unappealing.
Charles Haresnape is group managing director – mortgages at Aldermore
When new rules and regulations are implemented, such as those from the Mortgage Market Review last year, there is always the risk that there will be a rise in those attempting to abuse mortgage schemes or misrepresent themselves on their applications. This may not always be deliberate, rather a misunderstanding of the new rules.
As legislation changes, borrowing for those on the margins becomes more difficult and having a clearly defined process for scrutinising an application involves a great deal of responsibility on both the part of the lender and any intermediaries involved. It is important to stress that these instances, whilst alarming, are a very small minority of cases.
To this end, the Intermediary Mortgage Lenders Association and the Association of Mortgage Intermediaries published a joint framework of good practice so both lenders and intermediaries can focus on delivering high quality lending and good consumer outcomes.
That said, each lender has its own requirements, rules and processes in these situations where mortgage scheme abuse is concerned and ultimately they must make their own decisions.
At Aldermore, where scheme abuse is evident we would decline to transact business with that intermediary after dialogue, and there are additional processes in place where serious issues are reported to the regulator, which may, at its discretion, decide to make further investigation.
Increased communication and initiatives like the joint code of conduct are very positive steps, but while this is a serious issue, it is also important to keep in mind that these cases represent a very small percentage of overall business.
