Is fraud propping up house prices ?

DervProf

PasturesNew wrote: »

The telly program that exposes cheats etc that was running recently in the mornings quite often had instances of people claiming rent on a place that turned out to be their husband/partner's house and they'd simply used different names.

I have heard of this kind of thing taking place. Benefit fraud like that will not have as much, if any impact on house prices as would obtaining a larger mortgage than one's declared income would normally allow.

Jimmy_31

DervProf wrote: »

I have long suspected, and suggested that there is a fair degree of "dodgy" dealings going on behind the scenes when it comes to mortgage provision. I am often told that this is fantasy, and that if people were able to borrow more than they should, then why are repo levels fairly low ? I must admit that even with interest rates so low, it would seem impossible that more people who had "enhanced" their incomes would not be having trouble paying their mortgages. On the other hand, I still wonder why there are still lots of web based providers of replacement payslips, surely the reason they are still operating is because there is a demand, and when are you most likely to be asked to prove your income ?

I'm not suggesting that a majority of mortgage applications are fraudulent, but a post yesterday from a mortgage broker on this board revealed something that might show what could be going on all over the country. He explained that on a daily basis he meets people who appear to committing fraud. People sub letting council flats, landlords who have properties in their kids and relatives names, firemen who have second jobs where they don't declare the income etc. Now I'm not suggesting that this mortgage broker actually applies for mortgages for these people using dodgy (to say the least) income figures, but I have asked the question if he has a duty to report these people. At best, he may be finding out these things, but turning them away, but the fact is that he's meeting these people could be having an impact on property prices, and might explain why more honest people are finding it quite difficult to buy their first property.

So, is the "recovery" in the property market that some of our more bullish posters celebrate based on good, honest work, or is it partly due to dodgy dealings. And if it is partly due to fraud, should it be celebrated due to good old fashioned "entrepreneurial spirit" ?

The payslip service is very real and you dont need to go online to get it.

I was offered this service when the bubble burst, but it was going on all the way through the boom.

I declined as i felt it was a service that enabled me to lie to myself and hope for the best, turns out it was a good job i declined because i would have lost whatever house i had bought by now.

DervProf

Jimmy_31 wrote: »

The payslip service is very real and you dont need to go online to get it.

I was offered this service when the bubble burst, but it was going on all the way through the boom.

I would have thought that providing "discreet" payslips would have been banned by now, or at least be a useless service. Brokers/Lenders will surely know about replacement payslips, and any person who needs to prove their income to obtain a loan/mortgage could be asked to prove their income in other ways. If I were a lender, I certainly wouldn't just accept payslips as proof of income, I'd want to see bank statements and possibly tax statements if available.

Jimmy_31

DervProf wrote: »

I would have thought that providing "discreet" payslips would have been banned by now, or at least be a useless service. Brokers/Lenders will surely know about replacement payslips, and any person who needs to prove their income to obtain a loan/mortgage could be asked to prove their income in other ways. If I were a lender, I certainly wouldn't just accept payslips as proof of income, I'd want to see bank statements and possibly tax statements if available.

Wether its still going on now that the banks have tightened lending i dont know, but it has definitely been going on in the past.

StevieJ

Maybe one of those anti money laundering statutes should include a clause that forces the banks to forward the details on the mortgage applications to the Inland Revenue Just the threat of this should do the job

DervProf

StevieJ wrote: »

Maybe one of those anti money laundering statutes should include a clause that forces the banks to forward the details on the mortgage applications to the Inland Revenue Just the threat of this should do the job

Exactly.

It is suprising this hasn't already been done, or is it ?

The government/IR must know that a lot of tax is being "fiddled" and they do occasionally make noises that they are clamping down on tax evasion. A simple rule like this makes a lot of sense, and would surely prevent a lot of evasion that is probably taking place. However, it hasn't been implemented, and i haven't heard any suggestions that it is being considered. I wonder why ?

silvercar

There is a lot going on already:
http://www.fsa.gov.uk/pubs/other/mortgage_fraud.pdf

HAMISH_MCTAVISH

DervProf wrote: »

People with mulitple properties in children's/relatives names ?

People sub letting council houses ?

If people doing this were stopped, surely that would effectively release more property to those who stay within the law of the land.

Even a small number of property sales (carried out with honest or fraudulent money) can have an effect on house prices locally. How does an estate agent value a property ? I suspect it is often done by looking at what prices other similar properties sold for locally. If one or two of these properties where sold to less than honest people, the price they paid will influence the asking prices of property coming to market.

You seem to be confusing a lot of issues.

1. If someone has the income and ability to pay a mortgage, then it's not fraud to declare it as such to a lender.

2. These people may or may not be complying 100% with taxation law, but that's a separate issue. There has recently been a facility put in place for banks to check with HMRC on mortgage applications they view as suspicious, so that is being addressed.

3. Properties in multiple family members names can have a number of legitimate applications, such as completely legal tax minimisation strategies, inheritance planning, etc. Whereas I can't see it has much in the way of illegal or improper applications, other than perhaps hiding assets from bankruptcy but that would have to be done a number of years in advance to be successful so probably not very common.

4. Sub letting council houses is illegal and is being addressed with a number of initiatives.

But the real issue I have with your argument is the following statement...

If people doing this were stopped, surely that would effectively release more property to those who stay within the law of the land

Not on any meaningful level.

There is a massive shortage of housing in the UK.

It makes not the slightest bit of difference whether you shuffle a few thousand or even a few hundred thousand houses from rented to owner occupied or vice versa.

You still haven't provided any more houses. Those houses are currently being used. So there is no change to the housing shortage.

And that, above all else, is the primary reason for high house prices in the UK.

The current housing shortage is growing by a million houses every seven years. Until you fix that, anything else is just tinkering around the edges.

DervProf

HAMISH_MCTAVISH wrote: »

There is a massive shortage of housing in the UK.

It makes not the slightest bit of difference whether you shuffle a few thousand or even a few hundred thousand houses from rented to owner occupied or vice versa.

You still haven't provided any more houses. Those houses are currently being used. So there is no change to the housing shortage.

Indeed, there is no change to the shortage of housing, but there is a change to the amount of money that some of those that are buying property would be able to pay. You might argue that the number of people obtaining larger mortgages due to "suspicious" practices is small, I am suggesting that it may well be that the number is larger than many people think. The thing is with fraud (or whatever you want to call obtaining a larger mortgage than you would if you were being honest) is that people who commit or take part in the fraud are not often going to admit it. Yesterday, we had a glimpse of what may well be going on "behind closed doors" via a post made by a mortgage advisor.

HAMISH_MCTAVISH

DervProf wrote: »

Indeed, there is no change to the shortage of housing, but there is a change to the amount of money that some of those that are buying property would be able to pay. You might argue that the number of people obtaining larger mortgages due to "suspicious" practices is small, I am suggesting that it may well be that the number is larger than many people think. The thing is with fraud (or whatever you want to call obtaining a larger mortgage than you would if you were being honest) is that people who commit or take part in the fraud are not often going to admit it. Yesterday, we had a glimpse of what may well be going on "behind closed doors" via a post made by a mortgage advisor.

I am suggesting the number of people who apply for a mortgage they cannot afford to pay is tiny. As the default rates prove amply well.

At the end of the day, that is what matters to house prices.

You seem to be calling for banks or the government to do more to force people to pay more in tax, not moonlight in second jobs, earn less money, etc. You want to "level the playing field" by dragging everyone down to the lowest common denominator.

Like everyone else, I am supportive of outright fraud being prosecuted and prevented wherever possible.

But I also don't have a problem with people seeking to legally minimise their tax obligations, or doing a bit of extra work on the side to make ends meet. You'll never stop that sort of activity, and I'm not entirely convinced it's even worth worrying about.