mortgage madness

Now I know how ordinary people "down south" manage to buy 200k houses.

I thought that was common knowledge. I read an article on that a long time ago, must be 6-7 months ago at least. Reporter posed as potential mortgage customer at various lenders and he was encouraged to declare an enhanced salary to get the mortgage he wanted with several lenders.

Gav

Being as it's this easy for BM to check up upon the advice given by it's own staff, I'd say BM managers knew what was going on.

I think a suitable punishment would be for HBOS to be forced to offer these mortgages on the same terms (ie allowing inaccurate income declaration) for all present & future customers, and be prevented from taking any action or rolling up interest if customers can't keep up with repayments.

Sorted !

Daytona

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BBC Money Programme Article -

Mortgage customers 'urged to lie'

Housebuyers are being encouraged to break the law in order to obtain huge mortgages, the BBC has discovered. Brokers, and even banking staff, have been telling buyers to lie about their incomes to get bigger and bigger loans.

But what many don't realise is that they could end up in jail.

And these underhand tactics could also be the reason why house prices have gone on rising for so long.

On Monday, the mortgage lender Birmingham Midshires suspended three mortgage advisers while it investigates allegations that customers had been encouraged to exaggerate their salaries on application forms.

The company, owned by Britain's biggest lender HBOS, has also suspended sales of so-called "self-certification" mortgages, where borrowers certify their own incomes without the need to supply payslips. The allegations have been made by the BBC's Money Programme, which will be screened on Wednesday evening.

The programme also makes similar allegations about advisers at or recommended by several of the UK's biggest estate agent groups.

Several mortgage advisers are quoted boasting about how easy it is to get away with the mortgage fraud.

Serious offence

Tony Shaw QC, a criminal lawyer specialising in serious fraud, told the Money Programme: "A person who fills out a form, knowingly entering a false statement about his income or his occupation is at risk of going to prison.

"It is a serious offence."

Mortgage brokers who advise borrowers to lie could also face severe penalties.

"We will not tolerate any behaviour that might compromise our brand," said Dan Watkins, managing director of Birmingham Midshires.

"That is why we have taken the actions that we have announced today."

HBOS chief executive James Crosby declined to talk to the Money Programme.

Bubble effect

Desmond Fitzgerald, an expert in financial markets who advises financial institutions and regulators, suggested that fraudulent mortgage applications might be a factor behind continued high property prices.

"Over the past two years, most forecasters including myself expected the housing market at best to stabilise and more likely to fall. Instead it's powered ahead.

"Now clearly if there is this extra flow from these fraudulent self-certified mortgages, that will push hundreds of millions of extra cash flow into the housing market.

"So you get this sort of self-feeding frenzy, a real bubble effect."

Mr Fitzgerald said people who had obtained mortgages through fraud also risked financial ruin because they could end up paying more than half their after-tax income in mortgage repayments.

"A lot of people would find that difficult, if not impossible to manage," he said.

The Money Programme will be shown on Wednesday 29 October at 1930 GMT on BBC Two.

Story from BBC NEWS:

Published: 2003/10/29 08:01:30 GMT

© BBC MMIII

A common supposition if not knowledge. I've no doubt this has been going on in the background for decades, however, you'll probably find this is a first for supensions/sackings and potential criminal prosection - investigative journalism, thanks to the cameras, becoming more ruthless by the day. Soon we'll all have miniDVs in our button-holes.

Most people manage it by using the money from selling another £200k house. First time buyers don't have that option, and there aren't many of them around at the moment.

I don't see how that disagrees with what I said. You're saying that the problem, if it is one, is that people are being led into borrowing too much, and I agree with that; as I said, the point of the salary multiples is mostly to protect the borrower. What I was saying above is that the point about people committing fraud, while it might be technically true, is a red herring, because the lenders aren't going to be bothered as long as the interest gets paid and/or the LTV doesn't go above 100%. (Quite apart from the fact that a lender who encourages someone to lie is not in a very strong position to complain.) After all, people could just as well go for non-status mortgages and they wouldn't have to lie at all - I notice the BBC don't seem to have mentioned them.

Not really, except on rather long-term fixed rates you should set the limit according to what you think the *maximum* interest rate might be, not what it currently is. In the days when rates were high the standard multiples no doubt made sense, certainly when base rates were 15% a 4*salary loan was pretty painful even with MIRAS. Even back in 1997 base rates were over 7%, and MIRAS had gone (or maybe was about to go, I forget the timing). If your SVR was 8% a

4* salary loan would have eaten half your net salary even before you worried about capital repayments. Also with lower inflation salaries don't rise as fast so you need to look at what might happen several years out.

Since rates started dropping I think lenders have just been cautious, they don't want the blame for making a possible crash worse. However, given that you can get fixed rates at under 5% there's certainly scope for higher limits, likewise for anyone whose salary is likely to rise reasonably quickly. Rates will have to rise quite a lot to cause any real pain with the current multiples. I still think any problems are more likely to come from BTL, where even a rather small rate rise may put people into negative cashflow (i.e. rent less than interest plus maintenance).