New measure against mortgage fraud | AccountingWEB

New measure against mortgage fraud

Members may be interested in the following press release regarding cooperation between HMRC and mortgage lenders in relation to checking the true income of applicants for mortgages.  This may help reveal taxpayers who underdeclare their income for tax purposes and mortgage applicants who overstate their income in order to obtain a mortgage.



1 September sees launch of Mortgage Verification Scheme to combat fraud

30 Aug 11

1 September sees launch of Mortgage Verification Scheme to combat fraud

Following a successful pilot, 1 September sees the formal launch of an important new scheme to combat mortgage application fraud.

HM Revenue & Customs, the Council of Mortgage Lenders and the Building Societies Association have worked together on the development of the Mortgage Verification Scheme and see it as an important additional tool to help beat fraud. The National Fraud Authority estimates the cost of mortgage fraud at £1 billion last year, so measures to tackle it are important.

The scheme was announced in the March 2010 budget and has been refined during the pilot period since. Use of the scheme will be limited to cases where lenders reasonably suspect, following their own rigorous checks, that mortgage fraud may be taking place. 

Mortgage lenders will send relevant details of mortgage applications where they have inadequate evidence of declared income and suspect fraud using a secure electronic platform to HMRC, which will check income details declared to lenders against information provided in income tax and employment returns. HMRC will then advise lenders whether or not the details correspond, which will inform lending decisions. 

As well as aiding mortgage fraud prevention, the scheme will help HMRC to risk assess whether the information it has been given on applicants’ tax affairs is correct. In return, lenders gain access to a source of data that helps them to lend responsibly and manage risk. Financial institutions use a variety of sources to help them assess fraud risk, however, and will not rely solely on responses provided by HMRC to reach a decision where the lender suspects fraud.

HMRC has set up a specialised unit to deal with the requests. Any mortgage lender who wishes to use the scheme may do so. Other than a fee of £14 plus VAT per case to cover HMRC’s costs, lenders face no additional fees to participate. It is not anticipated that the scheme will have any significant impact on the time taken to reach a lending decision.

CML director general Paul Smee comments:

"Lenders have found during the pilot that the scheme has been very useful in helping them to lend responsibly. It has helped them to avoid lending in some cases where there is a risk of fraud, at the same time as giving them confidence about the borrower's credentials in some cases that they might otherwise have felt compelled to refuse."

BSA director general Adrian Coles says:

"This scheme is an excellent example of HMRC working proactively with business to provide a valuable service which could significantly decrease mortgage fraud and give an additional check to bolster responsible lending. Mortgage fraud is a cost to the industry, and ultimately the consumer, so this scheme benefits both lenders and consumers alike."

Colin Barclay, Assistant Director, HMRC Risk and Intelligence Service, says:

"HMRC are determined to tackle fraud wherever we can. The Mortgage Verification Scheme is an unprecedented opportunity for HMRC and lenders to work together to combat fraud in the mortgage industry."


ShirleyM's picture

It's a good idea    1 thanks

ShirleyM | | Permalink

Providing that the confirmation does not delay applications, and assuming this is the case, it should be a welcome step towards preventing fraud and tax evasion.

Also, it will hopefully prevent some of the silly questions that lenders ask accountants to provide when a client applies for a mortgage.


davidwinch's picture

Questions for accountants    2 thanks

davidwinch | | Permalink


I think lenders will still ask accountants the same questions.

The cross-check with HMRC is only intended to take place "where they [the lenders] have inadequate evidence of declared income and suspect fraud".  So I think they will not need it where they can obtain an accountant's confirmation.  It seems as if the check with HMRC will be a last resort.

It may happen in future that if a client self-certifies a silly income figure to get a mortgage he may find himself subject to a tax investigation based on that figure!

Dishonestly making a false mortgage application is a criminal offence under s2 Fraud Act 2006 even where the application is unsuccessful or is successful but no loss is suffered by the lender.

In the course of my work I regularly come across cases in which police obtain copies of past mortgage applications which prove to have false details on them.  This happens where the police are, for example, running financial checks on a suspected (or convicted) drug dealer who has purchased a property.

It is a simple matter for the police to find out who owns the property in which the suspect lives, whether a mortgage exists on it and who the lender is (normally these details are at HM Land Registry).  Then they can ask the lender for a copy of the application.  If the suspect actually has little or no legitimate income it is likely that false income details will appear on the application.

The point is not that the police will prosecute the mortgage fraud (too much hassle for them) but that following the suspect's convictions for the drug (or whatever) offence they will launch confiscation proceedings and include the mortgage advance in the defendant's total benefit from crime.


ShirleyM's picture

I think I read it too quickly

ShirleyM | | Permalink

So, not really of any help to accountants but will still help in detecting fraud & tax evasion and therefore still a good idea.

stepurhan's picture

Will it work in practice?

stepurhan | | Permalink

Whlst I can see it as a sensible idea in principle, I have concerns about the practical application.

We all have experience of extensive delays within HMRC for things that should be relatively simple to deal with. Are they really going to dedicate sufficient resources to this that there will be no delays to mortgage applications?

My other concern is where the resources for this "specialised unit" have come from. There have been cutbacks In HMRC funding and yet they've suddenly found enough people to form a specialised unit for this. Are these people going to solely deal with potential mortgage/tax fraud of this nature or are they going to do other fraud investigation work? If HMRC actually do devote enough resources to prevent delays to applications and those resources do not do any other work then I fear we are looking at people being paid to sit around twiddling their thumbs in quiet periods at a time of austerity.

Owain_Glyndwr's picture

Another sledge hammer to crack a nut

Owain_Glyndwr | | Permalink

This will simply mean that anyone self employed for less that 4 or 5 years will effectively be barred from buying a house.


A short sighted half baked policy [Mod - removed offensive content].


ShirleyM's picture

Why?    1 thanks

ShirleyM | | Permalink


Owain_Glyndwr PM | Sun, 04/09/2011 - 19:37 | Permalink

This will simply mean that anyone self employed for less that 4 or 5 years will effectively be barred from buying a house.

How will it do that? As David has already pointed out, this will only take place where fraud is suspected.

 ... and what makes you so sure this is a 'short sighted half baked policy clearly dreamt up by a simpleton tax officer'?

Effect on self-employed    2 thanks

Flash Gordon | | Permalink

Am I missing something? Surely its a good thing if it cracks down on mortgage fraud? Okay it may (and only may from the sounds of it) stop a few self-emps from getting a mortgage but only if they're totally misdeclaring their income "where they (the mortgage providers) have inadequate evidence of declared income and suspect fraud". Your average individual who applies will be unaffected as they'll just provide the same accountant's certificate as before and time scales will be unaffected.

stepurhan has a good point in terms of where the resources will come from but hopefully if they're getting paid for these checks then it will be partially self-funding and indeed may lead to discoveries of tax fraud which will raise revenue and pay for the rest. It may be that the Council & Association are part funding it?

If "HM Revenue & Customs, the Council of Mortgage Lenders and the Building Societies Association have worked together" then I'm guessing that it wasn't  "A short sighted half baked policy clearly dreampt up by a simpleton tax officer who is incapable of seeing further than his own performance bonus." unless said simpleton was extremely persuasive and talked the Council & Association into it....

Concerns for Self Employed Applicants

BillKate | | Permalink

Just a thought, but what figures are the banks going to provide to HMRC and to what extent will HMRC verify these figures?

If a self employed applicant has accounts profit of say £20k but purchased a van for £15k (AIA claimed) will he/his accountant be telling the bank that profits are £20k and will HMRC merely look at the taxable figure of £5k?

I believe this has potential conflicts where too many confusions will occur from entirely innocent applicants.

Taking matters further, if the banks have a facility to obtain additional verification and comfort from a 3rd party (HMRC), surely they will tend to start doing this as a matter of couse? Particularly where another arm of government are encouraging them to lend more.

The £14 fee will be passed to the applicant. As far as the VAT is concerned, am I missing something, or is HMRC now VAT registered? Or have they outsourced the checking procedures?

Pathetic as usual.

The Black Knight | | Permalink

So if the banks suspect mortgage fraud the will be able to report it to HMRC !!

I think I have heard that somewhere before ?

and HMRC can collect £14 profit each time.

This is just another one of those schemes that will not work as usual.

An easy way round we have seen is declare as much income as you need as dividends (no company needed) results in income and no tax, HMRC and the banks are incapable of spotting.

I wonder why we design systems that encourage this behaviour ? Is it so the banks can lend to a huge sub prime market, but be seen to be doing the right thing ?

Why doesn't HMRC check whether people have enough income to meet the mortgage repayments ? That would be a start and a really good indicator of tax and mortgage fraud.

Tax evaders are not clever it's HMRC that are challenged.

Self certification

The Black Knight | | Permalink

That's when the lender/broker does not want a reference from the accountant with figures that do not support the figures. Yes ?

I recall in 2003 when a reference letter asked how long had we had known our client and nothing else, I remarked " It's mortgage fraud silly season again"

Perhaps this ought to be included as part of the economic cycle just before recession ?

? how can this even be fraud when the banks seem to encourage it ? Surely if the banks agent/ member of staff has worked round the system to get the commission on the loan then then thats just part of the Deal agreed between you and the bank and just how it works.

Is this why Mortgage fraud is only of relevance in POC actions ?

davidwinch's picture

Data Protection Act

davidwinch | | Permalink

A point has been raised about possible breach of the Data Protection Act 1998 but disclosure is permitted for the purposes set out in s29 DPA 1998 which seems to cover it.


well its got to be a good thing

carnmores | | Permalink

as a retired FCA the mortgage lenders will not now accept accounnt prepared by me - so whats my route i joinn the institute of certified bookkeppers and hey presto all is well again - utter madness

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