The issue of fraud and potential fraudulent activity appears to be high on the agenda in the mortgage market at present especially with the looming changes that the Mortgage Market Review (MMR) will bring. The recent banning of one non-advised mortgage broker for failing to identify ‘false and misleading details’ in borrower’s application income details is the latest censure from the regulator and gives a clear idea of the repercussions for those involved in such practices.
In all of this ‘verification’ is clearly the buzzword and, while the MMR will put the ball firmly in the lenders’ court with regards to affordability, it is still going to be the broker’s job to ensure what the client is telling them is actually the truth. The big point here, as all credible, quality brokers will know is not simply to take, for example, a borrower’s income on blind faith.
The common example that is often used is that of a nurse suggesting they’re earning an income of £100k however it is likely to be more realistic scenarios that catches an adviser out. Someone might well be working two or three jobs which mean they earn an income higher than the one normally received for their primary profession, however the issue is whether they have the credible documentation to prove this.
I know we all want to provide a smooth pathway to mortgage finance for our clients but it will do you absolutely no good not to challenge any suspect information before submitting to a lender. One of the other major issues of the last couple of months has been brokers being ejected from lender panels and, it will be obvious to all, that any broker not verifying a client’s personal and income details will soon find themselves quickly removed by a lender.
Another potential area for brokers to be keenly aware of is that of clients looking to circumvent the more robust lending criteria that MMR will bring in for residential mortgages by presenting their purchases as buy-to-let. It is something of a moot point amongst certain industry commentators whether this type of practice will increase post-26th April but we believe it will because of the introduction of stress-testing under MMR.
We are not suggesting for one minute there will be a huge flood of clients attempting to purchase ‘buy-to-let’ properties with the intention of living in themselves however there are likely to be more applicants rejected for a residential mortgage and those who are desperate to buy any property by any means might think this is a risk worth taking. Lenders have, for the most part, always kept a strict eye on this sort of application and we suspect this will be increasingly so post-MMR. The consequences for those brokers who are placing this type of business in front of lenders are likely to be damaging regardless of whether they have had the wool pulled over their eyes by a canny borrower or not.
The new MMR rules certainly draw an advanced line in the sand in many areas of the mortgage sector and require greater and higher standards to be achieved by all practitioners. Brokers are not exempt from this and should ensure all their processes, systems and controls meet the level required of them. Non-compliance in this area is really not an option and any firm which believes it is not at the required level should urgently seek out the necessary compliance support to ensure this is just a temporary state of affairs.
Richard Adams is managing director of Stonebridge Group
