Mortgage Fraud in UK Sub Prime Markets

An investigation by BBC panorama found that there are many instances of mortgage fraud in the UK. This fraud is centered on the sub-prime or adverse credit market.

Mortgage Fraud Includes

• Selling Mortgage products to people without making very clear the increase in costs after the introductory period is over.
• Encouraging council tenants to exaggerate their income, to be able to take part in the “right to buy scheme”
• Exaggerating income for the purpose of self certification mortgage
• Selling mortgage products that companies know they can sell on, before they start to default.

Although repossessions in the UK are relatively low, there are concerns that they may increase if the practise of mis selling mortgages is not curtailed.

Panorama provide a rather disturbing case of Emmanuel, who with a bad credit history, got a sub-prime mortgage for £300,000 with the Alliance and Leicester. He only earns between £25,000 to £30,000.

Effects of Mortgage Fraud on the Rest of the Economy

1. It makes the housing market more volatile. For example, a small rise in interest rates can make mortgage repayments unaffordable for many who stretched themselves to be able to buy.
2. Rising defaults may cause house price falls. If the number of defaults increase, it could be a trigger for falls in house prices.

Related

• What Can we learn from the US sub prime crisis 

• Struggling to pay mortgage? 

• Sub Prime suspect at BBC - It is possible to watch an episode of panaorama at BBC website