Scheme abuse
This is when a customer hides their true intention behind buying a property to gain a mortgage that would otherwise be unattainable. For example, a customer could apply for a residential mortgage that they plan on renting out without the lender’s consent and/or trying to secure a Shared Ownership. The opposite, applying for a Buy-to-Let mortgage despite planning on living in the property themselves, would also be classed as scheme abuse.
How to spot this type of fraud:
What to look out for:
- Does security address fit with client circumstances? (eg clients with dependant children living in a 1 bed flat and buying a 4 bed house as a BTL etc)
- Proximity to employer
- FTB BTL’s
- If an existing landlord, is purchase consistent with portfolio?
- Cases where client may not meet residential criteria
- Client changes mind on intended use
How to mitigate this type of Fraud:
- Use of a declaration – mention at IDD, confirm at FF, reiterate before app.
- Explaining to clients that lenders undertake post sale checking.
- Call estate agent for more details
- Check Zoopla / Rightmove for full property details
Scenario
Clients married with 2 children.
Purchased existing residential 2 years ago through the same adviser.
Clients stated that they have moved out of property 6 months ago whilst extension takes place and are living with parents.
Looking to buy another 2 bed residential property nearer to parents so they can assist with childcare.
- Adviser obtained credit reports for both customers. Reports confirmed that both clients are on the electoral role at the parents property.
- All credit data also recorded at parents property.
- Planning permission was given on the existing property only the month of the application.
- Online searches show that the customers residential property was marketed for rent shortly after they took out the mortgage 2 years ago.
- Companies house shows 2 limited companies registered at the clients mortgaged property by individuals that are not the clients.
- Bank statements show credits labelled ‘rent’.
- New proposed purchase was a 2 bed property which did not appear suitable for a family of 4.
What could the adviser have done differently?
- Questioned the scenario and plausibility in more detail, queried the close proximity of all properties.
- Question the bank credits marked as ‘rent’.
- Questioned info on credit reports.
- Contact the estate agent to understand clients intentions.
The clients were committing scheme abuse by renting out their existing property and intended to then move into existing property after extension and then rent out the new 2 bed.
TMA Compliance members are encouraged to speak to their Sepcialist Area Supervision Manager for further support.
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