MortgagesMay 1 2014

Evidence emerges of brokers ‘gaming’ MMR rules

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Evidence is emerging that confirms the fears of many brokers that prospective borrowers and unscrupulous peers would seek to ‘game’ tough new mortgage lending rules by fraudulently submitting buy-to-let mortgage applications for residential purchases.

FTAdviser has seen documentary evidence relating to one broker that has been removed from Lloyds Banking Group’s panel s for submitting buy-to-let mortgages for residential buyers. Experts, including lenders, spoken to by FTAdviser have said the practice is on the rise.

Under new rules that came into force officially last Saturday, lenders must undertake tough affordability assessments for all mortgage sales, the vast majority of which will now be classified as advised sales.

The checks must include “at a minimum” a thorough income check of both “committed and essential basic expenditure”, with some lenders demanding information on everything from shopping bills to future family plans.

Critically, the rules do not apply to buy-to-let mortgages, which are not regulated by the Financial Conduct Authority. Many expressed concern that this would lead to brokers submitting applications for buy-to-let mortgages for residential buyers to avoid falling foul of the tests.

Lloyds confirmed to FTAdviser that it has removed brokers from its panels, adding that a “proportion” may be down to buy-to-let scheme abuse.

Mike Jones, director of intermediaries at Lloyds Banking Group, said: “Removal of a broker from our panel is a decision that is not taken lightly.

“We conduct an in-depth review of applications submitted with a particular focus placed on business submissions to the bank over the past 12 month period to ensure that removals are not made as a result of a one of issue.

“If irregularities are spotted, in buy-to-let or mainstream mortgage applications we use a warning process and proactively work with the broker to address the areas of concern, providing tailored guidance and face to face meetings.

“In some rare/ isolated cases, outright removals do occur where there is significant evidence that inaccurate or fraudulent application and supporting documents have been intentionally provided.”

A person with knowledge of the bank’s approach told FTAdviser there has a “slight increase” in buy-to-let scheme abuse.

Last month, Linda Woodall, director of mortgages and consumer lending at the FCA, said the regulator would be on guard against the increased risk of gaming buy-to-let and potentially using second charges to top up first charge loans.

She said examining lender response to these threats would be a key strand of a thematic review of the Mortgage Market Review later this year.

Leeds Building Society said its underwriters were alert to potential gaming and that brokers found to be submitting such applications would be removed. It added that it does not believe the practice is widespread.

A spokesperson for Leeds said: “This is a practice that our underwriters are very alert to and our policy and procedures are designed to guard against such fraud.

“We don’t believe this practice is widespread. However, any broker who is proven to have committed fraud is removed from the panel.”

A spokesperson for NatWest Intermediary Solutions added the “vast majority” of applications it receives from brokers are of a “good standard”.

He said: “Individuals applying for a buy-to-let mortgage who do not own a residential property will be assessed on personal affordability rather than a rental yield basis.

“We no longer accept regulated buy-to-let business – where occupants are immediate family members of the mortgage holder. When brokers submit an application for a buy-to-let mortgage under these circumstances, they are prompted to apply for a mortgage as a second residential home.”

A Santander for Intermediaries spokesperson said: “We are committed to working with the industry to combat fraud and we believe close interaction and open communication between lenders, distributors and intermediaries is integral to this.

“As part of our quality agenda, Santander for Intermediaries regularly reviews its broker panel to ensure the correct procedures and processes are in place.

“In cases where we remove a broker from our panel because of suspected fraudulent activity, we will always notify their network if applicable and the regulator.”