Mortgage fraud scheme closes loophole, what's the catch?

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House for saleGetting a mortgage has been a tough business for years. Before the crunch, thousands of people found themselves in the weird position where they could sign a piece of paper claiming to earn a particular figure and then suddenly find themselves with a loan for 105% of the property value. Now they are in the equally odd position of having to get hold of a massive deposit to cover at least 10% of the purchase price, and provide rock solid proof of an income that's big enough to comfortably cover mortgage repayments.

It's hardy a huge surprise that a number of people have been cutting corners and fabricating details. However, a new scheme will clamp down on these fraudsters.

Mortgage fraud
There is apparently £1 billion of mortgage fraud every year in the UK, where people lie on their application forms - usually about their income. Much of this is the dangerous business of trying to get a mortgage for more than you can actually afford.There is also another major area of fraud, where people fabricate everything and then make off with the cash. In many cases they will use stolen identities to set up mortgages on properties they don't own, and run off with hundreds of thousands of pounds before the fraud is discovered.

The Mortgage Verification Scheme means that lenders will be able to get hold of details from HMRC to check application forms against other records of income tax and employment - to check whether there are any discrepancies. Where they suspect fraud, lenders can send the details securely to HMRC, who will then check the details and let the lender know if there are any problems lurking.

Is this a good idea?
On the face of it, this is an excellent step forward. It will cut fraud, which will mean less money is lost by the banks, and less has to be recovered from their other costumers through higher fees and interest rates.

It will mean a fairer system, where it will be harder for you to fall foul of a fraudster who could make your life a living hell while you sort out the mortgage mess they leave behind.

However, there are real questions about just what effect these extra checks will have on the process. If for some reason your application is deemed suspect, not only will you have to wait while the mortgage company goes through the time-consuming process of checking the details, but you also have to wait for HMRC. It reckons it has set up a dedicated unit for this, and that the process will not take any longer than a usual mortgage approval. However, we all know the HMRC is hardly the most efficient organisation.

And even then, we are assuming that the HMRC checks will be accurate. There's always the hope that they will be, but then again there's always the danger that they will prove to be as error-prone as the rest of the organisation's chaotic business.

So what do you think? Does this scheme sound like a good idea? Let us know in the comments.

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