Is fraud propping up house prices ?

Graham_Devon

I stand corrected.

Don't believe it though.

chewmylegoff

Graham_Devon wrote: »

I stand corrected.

Don't believe it though.

What do you think it is then, and based on what evidence?

DervProf

chewmylegoff wrote: »

The national fraud authority estimates that mortgage fraud costs the economy £1 billion a year- I presume that is the total that banks lose as a result of (i) fraudsters selling a property to themselves, getting a mortgage and legging disappearing with the cash; and (ii) people inflating their income and then being unable to repay the mortgage.

And I expect it includes commercial mortgage fraud as well as residential.

Total residential mortgage lending is £1,200 billion. So it doesnt look like mortgage fraud is particularly significant when compared to the size of the market.

You seem to be saying that £1billion is the cost to the economy due to money obtained through fraud going missing, not the total amount fraudulently borrowed.

It could well be that a lot more than £1billion is fraudulently borrowed, but is being paid back. So does that make it OK for this "fraud" to take place ?

chewmylegoff

Yes that's right, and no, it isn't ok. But I also doubt that it is happening in massive numbers, and also if thy can afford to repay the mortgage then it doesn't suggest that house prices are being inflated beyond affordability by such fraud.

DervProf

chewmylegoff wrote: »

Yes that's right, and no, it isn't ok. But I also doubt that it is happening in massive numbers, and also if thy can afford to repay the mortgage then it doesn't suggest that house prices are being inflated beyond affordability by such fraud.

If those who obtained mortgages using fraudulent methods had not been able to do so, then they would have not been able to borrow the amount they did. Maybe an honest buyer may have taken their place, but who knows for sure ? I'm not saying that house prices are 10% higher because of fraud, but I would be suprised if fraud had not has at least a small effect on prices, and I would be even more suprised if the level of fraud was tiny, as has been suggested. When an independent mortgage broker admits that he meets a fair few people every day who are not being entirely honest (sounded to me like some of them were committing fairly serious fraud), I find it hard to believe that the problem isn't bigger than some would suggest.

chewmylegoff

I'm sure it has some impact as it increases the number of viable buyers and therefore has input into the supply and demand equation which sets prices.

As for a mortgage broker meeting people who seem to be inflating their income - that's not that surprising, as I suppose the sort of people who need to overstate their income to get mortgages are the sort of people who would be more likely to use a mortgage broker than to just arrange a mortgage directly themselves. Also as others pointed out earlier there is a difference between tax fraud (ie getting a mortgage on the basis of income you have but have not declared) and mortgage fraud (getting a mortgage by declaring income you dont have).

HAMISH_MCTAVISH

One of the biggest issues with the group-think that pervades the various house price discussion boards, is that the erroneous assumption house prices are too high and nobody can afford them is the starting point for all debate.

Hence the continuous search for problems that don't exist.

The reality is that mortgage fraud is a miniscule problem, and hasn't impacted house prices in any meaningful way.

For heavens sake, we removed 70% of mortgage lending from the market and prices are now just 10% or so below peak. Less than one percent of that lending would have been fraudulent. The impact on prices must be so small as to be completely unnoticeable.

HAMISH_MCTAVISH

DervProf wrote: »

It could well be that a lot more than £1billion is fraudulently borrowed, but is being paid back. So does that make it OK for this "fraud" to take place ?

Perhaps not, but equally that is a dangerous path to go too far down.

The "bears" repeatedly call for restrictions to be put on lending so as to make house prices fall. But we now have some pretty draconian lending restrictions in place, and house prices remain at just below 90% of peak prices, on average.

So it obviously wasn't lending that caused high house prices, as the excellent recent article by Stephanie Flanders pointed out.

But back to that dangerous path....

Lets say that you are a single 25 year old woman on 20K a year. That's unlikely to be enough to buy a house in most places at 3 times income. Change it to 5 times income however, and you could buy a FTB place in most of the country.

Now lets say you are a young couple, on a combined income of 40K. Now you can afford the same place most singletons could at 5 times their household income with just 2.5 times your household income.

The bears solution is to restrict lending for joint income borrowers to a lower multiple so that singletons can compete.

But where does it end?

Most higher earners receive a significant part of their income in performance related pay. So now the "bears" want this part of their income to be not allowable for mortgage calculation.

And now we see calls for greater scrutiny of income, and taxation, etc, as they still can't believe as many people out there either earn more than they do or are willing to pay a greater proportion of their income towards a mortgage than they are.

It just seems to me that this is little more than the politics of envy, and an attempt to level the playing field by dragging everyone down to the bottom.

CKhalvashi

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.

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.

A reporter went undercover into a large estate agency (I think it was Foxton’s) a few years back, and what Derv is saying does make sense. I know that much of it has been tightened since pre-recession.

At the same time, I flicked past a post mentioning the fact that many people are richer than they seem. What HSBC know of my finances and what HMRC know are two different things, that being that the foreign income I have each year (from savings, investments etc.) are taxed in the UK, with neither the British government nor HSBC knowing what I am truly worth, just what those investments are earning. I think I have about £20k of investments in the UK, and a LOT more in a bank in my native country (TBC Bank in Georgia, for anyone that’s interested).

At the same time, the mortgage fraud that we know takes place (but don’t know the amounts) would not be so dire that it affects property prices. Anyone telling you otherwise needs to come up with hard evidence of this.

Just my 2p

CK

silvercar

macaque wrote: »

The council rents a place out at X an then the tenant then sublets it at X + Y. And this is holding down rents?

No. Dodgy claimant gets HB for council place but actually lives with partner elsewhere. So they can sublet it at X, X+Y or X-Y, it's all money for nothing and increasing the availability of rental property.