In a final briefing on the forthcoming regulations, which hit the statute books later this week, the regulator also said using buy-to-let (BTL) products as a back door into residential home ownership has long been an area of concern.
BM Solutions, the buy-to-let division of Lloyds Banking Group, reversed its policy of lending BTL to first-time buyers a month after introducing it, fearing novice buyers were avoiding stricter affordability criteria by applying for investor loans instead.
But Linda Woodall, director of mortgages and consumer lending, said the existence of “unscrupulous” brokers and lenders is always a risk and buy-to-let was just one example.
“We’ll be interested in pursuing any form of gaming activity,” she said.
While Woodall said the MMR was an important tool in fighting fraud she admitted that if people wanted to commit fraudulent activity they would find innovative ways to operate as technology becomes more sophisticated.
Falsifying income levels is one area of concern the regulator will be monitoring following the implementaion period of the new rules.
One concern is that second charges, now regulated by the FCA, may be used to obtain higher loan to income ratios than would be allowed under a first charge affordability assessment.
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Second charge loans are not subject to the same stringent checks and self-certification of income using an accountant’s certificate is still allowed in some lender’s criteria.
The regulator said this was not a risk they would be looking at immediately but a it had already started to look at the whole operation of the second charge market due to the European Mortgage Credit directive’s lack of differentiation between first and second charge loans.
Keeping credit scoring and underwriting mechanisms, which sit behind lenders’ affordability calculators, hidden from brokers is considered by the FCA as an important defence against broker fraud.
Lucy Castledine, manager of the MMR implementation team, said: “There has always been a black box [of lender considerations] and I think it’s right that the black box is not opened up because it would be a huge risk to gaming.”
