Mortgage advisers should be on the lookout for clients attempting to circumvent affordability rules under the mortgage market review after April, Robert Sinclair has said.
The chief executive of the Association of Mortgage Intermediaries said tougher affordability rules could prompt some clients into fraudulent activity by trying to get buy-to-let finance for their primary residence.
Mr Sinclair warned brokers to be extra vigilant as “around the margins, lenders may not yet have introduced the full affordability rules expected of them under MMR”.
This means some borrowers able to get a residential mortgage in March will be refused in April when lenders will be expected to check their incomes and detailed expenditure, as well as applying strict interest rate stress testing.
Mr Sinclair said: “Most mainstream lenders are already stress testing at the new level. The problem comes around the margins with smaller lenders and whether that will encourage some clients to use a buy-to-let rather than a residential mortgage as buy to let is not caught by MMR.”
He added that brokers are “well aware that lenders are looking at this loophole” and that they run the risk of being removed from panels if they are seen to be facilitating this sort of mortgage fraud.
Oliver Whitehead, IFA at London-based Oportfolio, said: “This is a concern and is already a problem as far as some lenders are concerned. People right on the cusp of affordability may try to get a buy-to-let mortgage and then look to live in the property.”