Mortgage Frauds On The Rise

City of London police has reported a 72% increase in cases of financial fraud driven by a jump in mortgage scams over the previous year.

The force said cases of mortgage fraud had reached double figures and were one of the largest areas of activity for its officers. 

The number of investigations is expected to increase over the next year as frauds came to light and lenders sought to recover their losses, it said.

Detective chief superintendent Steve Head, who leads the City of London's economic crime directorate, said mortgage fraud "was happening all over the country" and "has jumped from nothing 18 months ago to being one of the biggest areas of investigation".

"While the amounts of money we are dealing with are significant, I don't think we are seeing the full picture. It is a fraction of the amount of fraud that has taken place.

"It is the mortgage lenders that are hit by the crime and they usually see it first. It would be good if the lenders were coming forward more than they are at the moment," he added. 

Last year the Association of Chief Police Officers estimated that mortgage frauds rake in £700m a year.

"Greed is the driving factor in fraud," said Head. "There are some where there are family links, some cultural links and some where the only link is greed. But a valuer is a key figure in the process."

The Royal Institution of Chartered Surveyors is currently investigating 10 complaints of valuation fraud, several of them in conjunction with the City Police.

The Financial Services Authority has banned 65 mortgage brokers in the last three years for mortgage fraud and levied fines totalling more than £1m.

In some cases gangs would buy a property, typically in a large development, at a deliberately inflated price.

Once the purchases appeared on the Land Registry website, they would be used as a basis for subsequent valuations, enabling the fraudsters to obtain inflated mortgage applications on other homes, often in the same development.

So, if a property was valued at £250,000 but was only actually worth £200,000, the gang could pocket the spare £50,000 to fund further deposits or to remove offshore.

The gang would usually include a solicitor and surveyor "on the payroll" to ensure that the funds from the lender were siphoned off.

Frauds went undetected because, at the height of the boom, lenders were happy to hand out mortgages without carrying out their own due diligence but relying on third party valuations.