Mortgage fraud

Mortgage fraud is when individuals defraud a firm or private lender through the mortgage process. This is a crime. 

Providing false details, failing to provide information required by law or knowing that the information used by others, such as the price of a house sale, might be misleading or untrue are all examples of fraud.

Quick sale offers

If you are in mortgage arrears or facing repossession you may receive an offer to buy your property at a discounted price in exchange for a quick sale. 

Homeowners facing financial difficulties may want to sell their property quickly to ease distress, or perhaps avoid repossession, and put the problems behind them.

Some companies and individuals offer to help do this by buying the property at a discounted price in exchange for completing the deal quickly. The discount is often around 20% and can be as much as 35% below the market value of the property.

The buyer may call these ‘below market value’, ‘BMV’ deals or ‘distressed property sales’.

These offers may include a promise to complete the deal within as little as 48 hours, pay the sum in cash, help you avoid legal and estate agent fees, and guarantee the sale.

But these deals sometimes involve fraud which could lead to you being prosecuted or losing housing benefits.

Fraud in false sale prices

Some quick and discounted property sales involve fraud, where the buyer asks the seller to state that the property is being sold for the full market value rather than the discounted price agreed.

This is usually done so the buyer can borrow the full amount they have agreed to pay for the property from a mortgage lender, but the lender thinks they have paid a deposit for the property.

In the current market, mortgage lenders will not lend the full amount needed to purchase a property and will require a sometimes substantial deposit. The bigger the deposit paid by the borrower, the more likely their mortgage application will be approved and the lower the interest rate charged.

For example, if the buyer is paying £120,000 for a property they might not be able to borrow the full amount they have agreed to pay, even if it has been valued at £150,000. However, by telling a mortgage lender they are buying the house for £150,000 but only need to borrow £120,000 (or 80% of the inflated price), the buyer may be able to access some or better mortgage deals.

Misleading the lender in this way is fraud and both the buyer and seller could face prosecution.

How to protect yourself

If a buyer asks you to exaggerate the price they will pay you for a property to ensure a quick sale, you should keep in mind that this is fraud.  It could put the sale at risk, and you may even face prosecution.

If you are receiving benefits, you should also consider that overstating the price paid for your property could affect your benefits payments as it may be assumed that you have additional money from the sale of the property.

While a quick sale may be appropriate for some people there are other steps you can take to deal with problems paying your mortgage that might leave you better off, such as discussing your options with your lender.

You can see more tips on what to do if you are having problems paying your mortgage from the Money Advice Service.

Other home financing schemes

In some cases you may be offered the option to remain in your property and rent it from an investor who purchases it. This is a ’sale and rent back’ agreement, and firms offering this must be authorised by us.  

If you are considering a sale and rent back agreement you should check the Register to make sure the firm offering it is authorised.

Firms may offer you other solutions which appear to repay your debts and may allow you to remain in your home without selling it immediately. We urge you to treat all schemes like this with caution.