Lenders report rise in mortgage application fraud

Lenders are reporting a rise in mortgage application fraud as consumers try to get around their tight lending criteria, a trade body said today.

The Council of Mortgage Lenders said its members had seen an increase in the number of people entering false details on application forms, particularly inflating the level of their income.

The problem has been exacerbated by a rush of buyers hoping to take advantage of recent house price falls to get on to or trade up the property ladder.

The increased demand for mortgages, at a time when funding remains in short supply, has left lenders increasingly favouring borrowers with large deposits or high credit scores.

Sarah Robson, a spokeswoman for the CML, said: "We don't keep figures on mortgage fraud but from anecdotal evidence we do know that it has increased.

"That is to be expected as lenders' criteria has tightened and would-be borrowers who are cut out are trying to circumnavigate this. But lenders are vigilant to it, so they are picking it up."

One of the ways in which lenders have tightened their criteria is by reducing the proportion of a borrower's income that they are prepared to advance.

The latest figures from the CML show that the average loan to income multiple for first-time buyers had fallen to 2.97 in May, down from a high of 3.39 in July and August 2007, before the credit crunch hit the mainstream mortgage market.

Existing homeowners have also been hit by the tightening, with their average loan to income multiple dropping from 3.18 at the end of 2007 to 2.79 now.

Another practice lenders are reporting is that applicants are not disclosing all of their existing credit card or loan debts, for fear that this may make the mortgage for which they are applying look less affordable.

But lenders are often picking up on these discrepancies by checking borrowers' credit files.

The problem of tight lending criteria is particularly acute for borrowers with only small deposits.

There are currently only 121 mortgages available for people with a 10 per cent deposit, down from 1,152 in November 2007.

Ray Boulger, senior technical manager at mortgage broker John Charcol, said many people applying to borrow 90 per centof their home's value were having their applications turned down because they did not have a high enough credit score.

Ms Robson said: "Demand for these (90 per cent LTV) products is high and those with the best credit score are going to be at the front of the queue."