Mortgage application fraud on rise

Fraudulent mortgage applications increased by 8% year on year in 2011, as "financially stressed" consumers tried to hide their bad credit ratings and lied about their jobs, a study has suggested.

A record 34 in every 10,000 applications for mortgages were found to be fraudulent in 2011, more than double the 15 in every 10,000 cases found in 2006 when the figures began, Experian said. There was a 4% increase in financial services application fraud overall, which was also driven by a growth in insurance and current account fraud, the study said.

The latest figure marks the fifth annual mortgage fraud increase in a row, with 93% of such attempted scams due to people "misrepresenting" their personal information on applications, most commonly by trying cover up a poor credit history, or making false claims about their employment status or the state of their finances.

Those who appear to be particularly succumbing to this type of fraud included young, well-educated professionals; young, less well-educated people living in small towns; and middle-aged skilled workers, the report suggested.

Mortgage availability is expected to dip in the coming months as lenders tighten their borrowing criteria amid the weak economy. Several lenders have already announced mortgage rate rises, affecting more than a million people in total.

Stricter mortgage lending rules will also come into place under plans by the Financial Services Authority (FSA) to ensure there is no return to irresponsible lending and borrowers can only take out deals they can afford, without relying on house price rises.

Fears have been raised of a "ticking time bomb" of people on interest-only deals who may find themselves unable to remortgage, with some 1.5 million interest-only mortgages worth around £120 billion due for repayment in the next decade.

The overall rate of fraud at point of application across the UK's financial services sector increased by 4% in 2011, to just over 17 in every 10,000 applications. Nick Mothershaw, a fraud director at Experian, said the rises in mortgage and insurance fraud will tend to have come from the "financially stressed segments of society".

Insurance fraud rates reached 11 in every 10,000 applications and claims in 2011, an increase of 23% over the last year, while the rate of current account fraud rose to 36 frauds per 10,000 applications, up from 23 in every 10,000 in 2010.

Some 40% of current account fraud attempts were due to third-party identity fraudsters seeking to open accounts as a springboard to obtain other, more lucrative credit products, or for money-laundering purposes. But credit card fraud fell, from 19 in every 10,000 applications in 2010 to 12 in every 10,000 in 2011. The rate at which fraudsters target new credit cards is almost a quarter of the level recorded in 2006, when 45 in every 10,000 applications were fraudulent.