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 Avoid Committing Mortgage Fraud

Avoid Committing Mortgage Fraud

How To Guard Against Mortgage Fraud

Following fresh warnings from the National Fraud Authority about the rising level of mortgage fraud in the UK, lenders want more done to protect their interests.

Mortgage fraud was a widespread problem before the financial meltdown and collapse of the property market back in 2007/8 due to the availability of self- certification mortgages with buyers, brokers and mortgage advisers able to ‘self-declare’ earnings with little, if any, proof required by an industry too busy to carry out proper rules and checks on applicants.

Mortgage fraud costs the industry around £1 Billion (GBP) a year, leading the Financial Conduct Authority to want to instruct mortgage lenders to better acquaint themselves with the solicitors they work with.

The new stricter mortgage rules introduced in the Mortgage Market Review in April 2014 are intended to reduce the number of people who attempt to make false claims and self-certification mortgages are now a thing of the past.

However, this won’t stop mortgage fraud or prevent homeowners and property investors from being a victim of identity or registration fraud.

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Mortgage Market Review Hits UK Property Market

Mortgage Market Review Hits UK Property Market

Mortgage Market Review Affected Housing Market Before Launch

The new regime for the approval of mortgages came into force over the weekend (26th April 2014) but even before it was officially launched it was having a dramatic effect on applications, with loan offers being carefully scrutinised and the impending process had lenders asking even more questions before approving any mortgage offer.

I experienced the vagaries of the system myself, when taking a call from a lender the day before funds were due to be released, I was asked to provide even more details than ever before on a loan application, culminating in further delay to purchasing, and the details I had to provide and verify could have been done weeks before.

The lender said the additional information was in order to comply with MMR and this was before the official launch date. The property I was purchasing should have completed last week, before the MMR introduction date, but the delays caused by the lender requesting verification of the additional information required to process my loan meant that the loan process was delayed and resulted in dragging things out, until 9am today, when my solicitor called me to say that the purchased had finally completed.

The additional requirements of the MMR will result in the death of quick purchasing by property investors, however, I now know that in order for loans to be agreed that I have to provide extremely detailed accounts, financial projections, and provide verified proof of everything I have ever done in order to prove affordability.

The personal finance industry publication Mortgage Strategy says 7 out of 10 mortgage brokers reckon that it will be harder and slower for prospective purchasers to get a mortgage loan under the new MMR regulations.

For all new mortgage applicants it means not only providing evidence to the lender of all income and earnings including payslips or audited and verified accounts for the self-employed, but also requires providing details of all spending, too.

Mortgage applicants must itemise and cost spending on things they cannot do without, as set out in a list provided by the Financial Conduct Authority (FCA), including food, household cleaning and laundry, all heating costs, water bills, telephone, essential travel and existing property charges such as council tax, buildings insurance, ground rent and service charges for leasehold apartments.

Applicants must also disclose discretionary spending on clothes, household goods, personal goods such as toiletries or leisure activities.

The FCA says mortgage applicants must itemise other debts such as credit card bills, outstanding loans, child maintenance and alimony payments.

Mortgage lenders and finance providers must consider how interest rates are predicted to change over the next five years, to gauge the affect on borrower’s mortgage repayments. If payments are likely to go up then the lender will check that the borrower can afford it based on disclosed financial commitments.

And if mortgage terms extend into a borrower’s retirement, the lender has to check on pension income predictions too, in order to judge continued affordability.

BoE Base Interest Rate Set To Remain Low Until 2015

BoE Base Interest Rate Set To Remain Low Until 2015

Base Interest Rates Set To Remain At
Low Levels Until The End Of 2015

A new economic forecast by Ernst & Young’s (EY) independent forecasting group, the Item Club, reckons that Bank of England (BoE) interest rates will remain at their historic low until the end of 2015 as wages start to outstrip inflation.

The Bank of England’s base rate has an impact on mortgage loans on property and savings returns and with the base rate remaining at 0.5%, it expects house prices to rise by 7.4% this year and 7.2% next year.

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FCA Not Interested In Mis-Selling Of Interest-Only MortgagesFCA Claim There Is No Evidence Of
Mis-Selling Interest-Only Mortgages

The Financial Conduct Authority (FCA) has stated that there will be no further investigation into whether interest-only mortgages were widely mis-sold in the UK.

The FCA have concluded that the vast majority of borrowers with interest-only mortgage deals understood exactly what they were taking on, diminishing the chance of lenders facing mass claims for mis-selling mortgages.

Martin Wheatley, Chief Executive of the Financial Conduct Authority (FCA) responded to an enquiry from the Treasury Select Committee, saying: “The vast majority of customers understood the mortgage product they were sold and understand the need to repay the mortgage balance and have plans, albeit in some circumstances imperfect, on how to repay”.

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FCA Accused Of Interest-Only Mortgage ScaremongeringThe Financial Conduct Authority (FCA) has been accused of scaremongering when it comes to dealing with outstanding interest only mortgages.

You may remember that Spotlight reported that the FCA warned that almost half the 2.6 million or so UK property owners that have interest only mortgages would not have savings or other funds to cover the final bill at the end of the tenure.

Read the article here

Interest only mortgages represent approximately 33% of all UK mortgages.

With Interest only mortgage holders only paying enough to cover the monthly mortgage interest on the amount borrowed, the average shortfall is £71,000 (GBP) per person, according to the published FCA research.

The FCA, the new watchdog for the sector taking over from the Financial Services Authority (FSA), commissioned the research to provide a clear indication of what mortgage borrowers could face when their Interest Only mortgages mature between now and 2041.

Property investors and Buy-To-Let landlords are still wise to select interest only mortgages, rather than waste money by opting for capital repayment mortgages from the outset.

Landlords choose interest only mortgages to purchase rental properties because they are the cheapest option and may choose to switch to a repayment option at any time once the rental income is coming in.

Peter Williams, Executive Director of the Intermediary Mortgage Lenders Association (IMLA),said: “By confirming that nine in every ten interest only (IO) borrowers have a repayment strategy in place, the FCA’s research should put an end to misguided reports of a mis-selling ‘scandal’ when the market boomed between 2002 and 2007. Having said that, as both the Experian report for the FCA and the GfK report shows, there are issues for the industry to deal with.” 

Market research firm GfK NOP questioned 1,103 interest only borrowers to consider how prepared they were to repay their loans.

The study found that 37% of interest only mortgage holders faced a shortfall in their plans to pay back the lump sum of the home loan, based on their own calculations.

But the FCA believes that many people underestimated the financial problem and it believes 48% of interest only mortgage holders will face a shortfall.

Martin Wheatley, Chief Executive of the FCA, said: “My advice to borrowers is not to bury their head in the sand over interest only mortgages. This report is a call to action.”

 

Interest Only Mortgages Are A Ticking Time Bomb

Interest Only Mortgages Are A Ticking Time Bomb

Over 1 million landlords and homeowners with interest only mortgages could face financial difficulties when reach the end of their tenure and they have to pay them off, according to the Financial Conduct Authority (FCA).

The FCA estimates that around half of the 2.6 million or so UK property owners with interest only mortgages, which represents about a third of all UK mortgage holders, will not have savings or other funds to cover the final bill.

With these mortgage holders only paying enough to cover the monthly mortgage interest on the amount borrowed, the average shortfall is £71,000 (GBP) per person, according to FCA research.

The FCA, the successor of the Financial Services Authority (FSA) as the sector’s watchdog, commissioned research to give a clear indication of what borrowers face when mortgages mature between now and the year 2041.

Market research firm GfK NOP questioned 1,103 interest only mortgage borrowers to consider how prepared they were to repay their loans.

The study found that 37% of borrowers with an interest only mortgage faced a shortfall in their plans to pay back the lump sum of the home loan, based on their own calculations.

But the FCA believes that many people have seriously underestimated the severity of the financial problem and believe the true percentage to be around 48% of all residential property owners with interest only mortgages will face a shortfall.

The vast majority of interest only mortgages were taken out by property investors and residential homebuyers before the financial crash, according to Martin Wheatley, Chief Executive of the FCA, who stated: “It’s just that people were optimistic about the future. My advice to borrowers is not to bury their head in the sand. This report is a call to action.”

The interest-only mortgage time bomb is a serious problem for property investors without an exit strategy and potentially terrifying for homeowners who have no means in place to repay the capital of the original loan.

The media have already stirred up a fervour of anguish with overemphasised coverage on the negative aspects of taking out an interest only mortgage, almost as if they are acting in the interests of the mainstream mortgage lenders attempting to get property owners to switch to repayment mortgages immediately.

The media coverage suggests that interest-only mortgages are a disaster waiting to happen for property investors and residential homeowners with at least 60,000 borrowers facing capital repayments by 2020 without any means of being able to pay back the loan and another 260,000 facing the same financial crunch over the next 30 years.

Graham Lock of House Network said that the FCA is guilty of scaremongering, stating: “People use interest-only mortgages to get on the ladder and they can choose to switch to a repayment option at any time once it becomes affordable. Wage inflation will take care of most of this added with the fact that most of us will work until we’re 70 means there is plenty of time to switch to repayment in the future.”

Executive Director of the Intermediary Mortgage Lenders Association (IMLA), Peter Williams, added: “By confirming that nine in every ten interest-only (IO) mortgage borrowers have a repayment strategy in place, the FCA’s research should put an end to misguided reports of a mis-selling scandal when the market boomed between 2002 and 2007. Having said that, as both the Experian report for the FCA and the GfK report shows, there are issues for the industry to deal with.”

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