Lloyds Banking Group’s intermediaries director has told FTAdviser that instances where applications are fraudulently submitted as buy-to-let since new affordability rules came into force are most often where the mortgage broker has been deceived by their client.
Mike Jones told Financial Adviser news editor Simoney Kyriakou in the latest FTAdviser video that tougher affordability assessments and availability of interest-only loans creates a “logic” which might prompt some to “abuse” rules and subject landlord applications for residential purchases.
Rejecting the label “gaming” as underplaying the significance of the deception, Mr Jones said: “It is a small number of cases that we identify but big consequences for advisers.”
FTAdviser has previously reported on one case involving a broker who was removed from Lloyds’ panels for knowingly submitting buy-to-let mortgages for residential buyers. Experts, including lenders, said the practice is on the rise.
However, Mr Jones said that advisers had been helping to police applications and that most of the cases the bank is now seeing involve a borrower seeking to “hookwink everybody”.
He said: “What I think is now happening is we and the advisers have worked together to squeeze this one down is where it does happen is where the borrower is trying to hoodwink everybody. That is where I am most looking these days.”
Earlier this month, the Financial Conduct Authority warned lenders to be on the lookout for the practice, as it cited concerns that the exclusion of unregulated buy-to-let from Mortgage Market Review rules could prompt an increase in fraud.
It said: “Buy-to-let mortgages are excluded as they are not a regulated mortgage product. We are conscious, however, that that some borrowers who are constrained by the flow limit might be encouraged to make fraudulent applications for buy-to-let mortgages.
“Given the severe penalties associated with mortgage fraud we do not anticipate that this will become a material point of leakage but we expect firms to ensure that application verification procedures for buy-to-let products are robust.”
