The sad news is that mortgage application fraud on the rise in the UK, and this can cause a massive headache to the vast majority of honest house hunters who, through no fault of their own, have triggered a red flag during their application.
Mortgage application fraud occurs when an individual provides false or altered documents in support of a mortgage application.
The research revealed that fraudulent applications on mortgages were up by 5% in 2019, as 13% of British adults believe it is ‘reasonable’ to exaggerate income on a mortgage application.
With this in mind, experts from anti-money laundering service, SmartSearch, reveal some of the biggest considerations for Brits when it comes to mortgage applications.
1: Gifted deposits
If you’re lucky enough to receive help from your family or friends in the form of a gifted deposit towards your home purchase, there are a few considerations you should make. Lenders and solicitors will always question the source of your deposit, so it’s important to explain to your mortgage advisor from the outset exactly where the money has come from.
This is especially true in the case of gifted deposits, as large sums of money being transferred into an account are flagged as unusual activity, and may warrant anti-money laundering investigations or harm your mortgage application.
Providing proof that your deposit is a gift and not a loan, is also an important step to consider. This can be a signed letter or document outlining that the deposit is a gift, which is typically enough to satisfy lenders. The signed document should clearly state that the deposit is not a loan and doesn’t need to be repaid. In addition, it should also state that the gift doesn’t grant your friend or family member any rights to the property. Your mortgage advisor can provide you with a document template if you’re unsure.
2: Deposits from inheritance and personal savings
The most common source of deposit for a home is from personal savings or inheritance. Both of these funding sources should be accepted by mortgage lenders without issue. However, additional checks may need to be completed to clarify the source of the money, so make sure that you can prove your claim to the inheritance and there is documentation showing exactly where the money has come from, and where it’s been since you claimed it.
Lenders very rarely require additional checks for personal savings, but, if you have had big salary changes that have helped to contribute towards your savings, it can help to have older payslips on hand to verify your previous income.
3: Deposits from credit cards
Credit card fraud accounts for 39% of identity fraud cases in the UK2, with the main aim of the activity being to purchase goods without paying, or to steal money from someone else’s credit account. The most common types of credit fraud are lost or stolen credit cards being used without the owner's permission, skimmed credit cards, stealing credit card details and committing fraudulent applications in someone else’s name.
With this in mind it’s no surprise that credit cards are typically not accepted by mortgage lenders, as they are unsecured loans and high risk. Using a credit card as part of your deposit is likely to see your application rejected and set you back in terms of securing your home.
4: Register on the electoral roll
Lenders must be able to verify your identity for purposes of anti-money laundering. Registering on the electoral roll helps to prove your identity and make sure you are who you say you are, as it enables lenders to check your information and confirm your name, address and residential history.
If you’re not registered on the electoral roll it is just about impossible to secure a mortgage, as banks and building societies need to know that the information about you is up to date. Therefore, it is important to make sure you are registered before applying.
5: De-link from ex-partners
When taking out loans or bank accounts with another person, typically a partner, you become financially linked to them and their activity can impact your credit score and how lenders see you. This makes it more difficult for those reviewing your application to attribute certain spending patterns to you and can raise suspicion if there are irregularities.
If you believe you may still be linked financially to an ex-partner, contact credit reference agencies and explain the situation to them, they will be able to disassociate you with your ex-partner.
John Dobson, CEO at SmartSearch, says: “Applying for a mortgage can be an exciting and also daunting task, with many first-time buyers unsure of what to expect during the rigorous application process.
“It is important to remember that a mortgage is a significant financial commitment, and making exaggerations or withholding any changes in circumstances may result in you being investigated for money laundering and fraud, making it more difficult to secure a mortgage or other financial products in the future.
“We hope by revealing some of the biggest considerations for mortgage applications, you will be equipped with the knowledge you need to easily secure a mortgage.”