CML Wants Rules To Guard Against Mortgage Fraud

The Council of Mortgage Lenders (CML) has called for a tightening of rules to prevent possible mortgage fraud concerning the sale of new-build city centre flats.

It says that the slowing housing market might tempt some developers to offer “incentives” to potential buyers. Such deals may include cash-back offers, which might actually increase the headline value of the flats. The result might be that they could grant excessive mortgages.

The CML’s fortnightly News and Views publication said: “In recent years, discounts and incentives have had the effect of making the real value of new homes less than transparent. This is bad news for genuine buyers and for lenders. Buyers may find themselves with a mortgage worth more than the property’s value, while lenders may find themselves exposed to fraud and the risk of loss.”

Prices are falling in many parts of the country, meaning that lenders do not want to be tricked into offering bigger mortgages than necessary, and are wary of developers’ sales tactics.

Recently built city centre flats have been losing value and may prove a subject of temptation for incentives. Some offers include the paying of legal fees and stamp duty, cash-backs, offers of free holidays, the supply of white goods or even the arrangement of reduced mortgage payments.

Professionals who do the conveyancing - typically solicitors - are supposed to tell lenders about deals, but they will not be able to do so if the incentives are hidden from them.

The problem was also discussed in last week’s Financial Risk Outlook from the Financial Services Authority.

CML spokesman Bernard Clarke, said it wanted developers to sign up for the codes of practice as both solicitors and valuers do. He said: “We want developers to uphold similar sorts of standards. We don’t think there is a lot of this going on. But lenders are concerned this area has been targeted.”