Fraud measures could damage housing market

A scheme tackling mortgage fraud – which cost the industry about £1bn last year – may slow applications in an already stagnant market, mortgage brokers have warned.

Lenders who "reasonably suspect" that mortgage fraud may be taking place will send details of the application to HM Revenue & Customs (HMRC), who will check income details against information provided in income tax and employment returns. HMRC will then advise lenders whether or not the details correspond.

According to CIFAS, the UK fraud prevention service, two prominent types of fraudulent mortgage activity came to the surface in the first half of this year. The concealment of adverse credit history, which could include not declaring debts or previous addresses with county court judgments associated with them, accounts for around 24 per cent of individual mortgage fraud recorded. However, altering proof of income, such as payslips or P60s, also accounts for around 24 per cent of reported fraud, up from 14 per cent in the last six months of 2010.

"People know enough about mortgage lending to realise that they need a certain income to borrow a certain amount," says CIFAS spokesman Richard Hurley.

"They are taking action they otherwise wouldn't have considered, but they aren't considering the ramifications. People don't see it as fraud, as akin to MPs manipulating their expenses. A mortgage application is a legal process concerning a large amount of money and a fraudulent application could certainly lead to a criminal record or a civil pursuit."

The Mortgage Verification Scheme comes at a time of acute stagnation in the mortgage market, and brokers worry that further bureaucracy could mean applications are slower to process.

"The fraud scheme is being introduced in response to some of the excesses in the market at the height of the lending boom," says Melanie Bien, director of mortgage broker Private Finance. "Mortgage fraud has been less of an issue since the downturn, as lenders have displayed more caution and the volume of lending has fallen.

"Lenders may welcome the opportunity to double-check an applicant's financial position but it could be an issue if this significantly slows down the application while the lender awaits a response."

A mortgage application currently takes around three to four weeks to process, including credit checks, valuation and references. Contract negotiation, surveys, exchange and the eventual fund transfer regularly makes the process 10 to 12 weeks long.

And that's when everything goes smoothly. If the new scheme becomes used widely then experts warn it will be vital that HMRC delivers information in good time to make sure that applications aren't delayed.

"The verification service will only be as good as the quality of the data and the matching process being up to scratch," warns David Hollingworth, of mortgage broker London & Country. "It could pose problems for borrowers if their data is not matched correctly.

"But if this service can be shown to be robust it could have some benefits and reduce the amount of documentation currently required."

Childcare costs squeeze households

Young families are giving up on financial security as the spiralling cost of childcare forces more parents to stop work to look after their children.

Despite a staggering 95 per cent of UK families worrying that they aren't protected against loss of income, many families are giving up the two-parent income as the cost of childcare reaches an average of £729 a month for a two-year-old, research from Aviva has found.

A typical working woman with two children could be out of pocket by £98 for part-time and gain just £120 a month in full-time work once childcare and work expenses are taken into account. The loss has prompted 32,000 more women to stay at home to care for children since the third quarter of 2010.

But the trend does nothing to help families who have little to fall back on if the main breadwinner's salary is lost. Just 10 per cent of families have an income protection insurance, and typical family savings are just £982, less than half the average monthly income, the insurer warns.