Mortgage approvals and overall lending figures increased in June according to the Bank of England. Approvals for mortgages for house purchases increased to 40,000, up from a record low of 9,300 in May.
In their “Money and Credit” report released yesterday, the central bank revealed the following: “The mortgage market showed some signs of recovery in June, but remained relatively weak in comparison to pre-Covid. On net, households borrowed an additional £1.9billion secured on their homes.
“This was higher than the £1.3billion in May but weak compared to an average of £4.1billion in the six months to February 2020.
“The increase on the month reflected both more new borrowing by households, and lower repayments.
“Gross new borrowing was £15.8billion in June, below the pre-Covid February level of £23.4billion.
“The number of mortgages approved also increased in June. The number of mortgage approvals for house purchase increased strongly, to 40,000, up from 9,300 in May.
“Nevertheless, approvals were 46 percent below the February level of 73,700.”
This is much needed good news following months of negative economic headlines.
However, research from the anti-money laundering service SmartSearch has highlighted that mortgage application fraud is on the rise in the UK.
Mortgage application fraud occurs when an individual provides false or altered documents in support of a mortgage application.
SmartSearch detailed that fraudulent applications on mortgages were up by five percent in 2019, with 13 percent of British adults believing it to be “reasonable” to exaggerate income levels on an application.
John Dobson, the CEO at SmartSearch explained how this could be problematic for savers: “Applying for a mortgage can be an exciting and also daunting task, with many first-time buyers unsure of what to expect during the rigorous application process.
“It is important to remember that a mortgage is a significant financial commitment, and making exaggerations or withholding any changes in circumstances may result in you being investigated for money laundering and fraud, making it more difficult to secure a mortgage or other financial products in the future.”
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Fortunately, the organisation revealed some of the biggest considerations that should be taken into account when applying for a mortgage that could raise money laundering red flags if not handled carefully.
The first consideration will likely mainly concern first time buyers:
As the organisation explained: “If you’re lucky enough to receive help from your family or friends in the form of a gifted deposit towards your home purchase, there are a few considerations you should make. Lenders and solicitors will always question the source of your deposit, so it’s important to explain to your mortgage advisor from the outset exactly where the money has come from.
“This is especially true in the case of gifted deposits, as large sums of money being transferred into an account are flagged as unusual activity, and may warrant anti-money laundering investigations or harm your mortgage application.”
They went on to detail what steps could be taken to ensure no problems arise with this: “Providing proof that your deposit is a gift and not a loan, is also an important step to consider. This can be a signed letter or document outlining that the deposit is a gift, which is typically enough to satisfy lenders.
“The signed document should clearly state that the deposit is not a loan and doesn’t need to be repaid. In addition, it should also state that the gift doesn’t grant your friend or family member any rights to the property. Your mortgage advisor can provide you with a document template if you’re unsure.”
Of course, deposits can come from many sources and SmartSearch went on to highlight some of the most common areas of concern:
Deposits from inheritance, personal savings and credit cards
“The most common source of deposit for a home is from personal savings or inheritance. Both of these funding sources should be accepted by mortgage lenders without issue. However, additional checks may need to be completed to clarify the source of the money, so make sure that you can prove your claim to the inheritance and there is documentation showing exactly where the money has come from, and where it’s been since you claimed it.
“Lenders very rarely require additional checks for personal savings, but, if you have had big salary changes that have helped to contribute towards your savings, it can help to have older payslips on hand to verify your previous income.
SmartSearch moved onto credit card deposits, which make up a surprisingly large amount of fraud cases: “Credit card fraud accounts for 39 percent of identity fraud cases in the UK, with the main aim of the activity being to purchase goods without paying, or to steal money from someone else’s credit account. The most common types of credit fraud are lost or stolen credit cards being used without the owner’s permission, skimmed credit cards, stealing credit card details and committing fraudulent applications in someone else’s name.
“With this in mind it’s no surprise that credit cards are typically not accepted by mortgage lenders, as they are unsecured loans and high risk. Using a credit card as part of your deposit is likely to see your application rejected and set you back in terms of securing your home.”
Finally, SmartSearch concluded with a number of administrative tasks which should be done to avoid any problems:
Register on the electoral roll and De-link from ex-partners
“Lenders must be able to verify your identity for purposes of anti-money laundering. Registering on the electoral roll helps to prove your identity and make sure you are who you say you are, as it enables lenders to check your information and confirm your name, address and residential history.
“If you’re not registered on the electoral roll it is just about impossible to secure a mortgage, as banks and building societies need to know that the information about you is up to date. Therefore, it is important to make sure you are registered before applying.”
Many people are likely to make large financial decisions with a partner.
This is especially true with mortgages as property can be expensive and therefore needs more than one person to make it affordable.
However, as SmartSearch explained, these partnered decisions should always be thought through thoroughly: “When taking out loans or bank accounts with another person, typically a partner, you become financially linked to them and their activity can impact your credit score and how lenders see you. This makes it more difficult for those reviewing your application to attribute certain spending patterns to you and can raise suspicion if there are irregularities.
“If you believe you may still be linked financially to an ex-partner, contact credit reference agencies and explain the situation to them, they will be able to disassociate you with your ex-partner.”
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