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Verification: Lenders will be able to check the income details declared by applicants once the scheme is rolled out
A scheme designed to stop potential borrowers fraudulently bumping up their earnings on mortgage applications has been launched.Aimed at halting an estimated £1 billion of mortgage application fraud committed in the UK each year, it will allow lenders to become probe borrowers much more closely.The Mortgage Verification Scheme will enable lenders to check income details declared in application forms against information provided in income tax and employment returns held by HM Revenue & Customs (HMRC).It represents a combined bid to slash the number of liar loans, where borrowers falsely inflate their earnings, and also cut back on applications where fraudsters deliberately target mortgage lenders and make off with the cash.How the system will work
Mortgage lenders will send relevant
details of mortgage applications, using a secure electronic platform, to
HMRC where they have inadequate evidence of
declared income and suspect fraud.
HMRC will
then advise lenders whether or not the details correspond, which will
inform lending decisions.  
HMRC
has set up a specialised unit to deal with the requests, which can be
made by any lender for a fee of £14 plus VAT to cover costs.
 



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Use
of the scheme will be limited to cases where lenders reasonably
suspect, following their own checks, that mortgage fraud may be taking
place.
The CML said
institutions will not rely solely on responses provided by HMRC to
reach a decision where the lender suspects fraud.

A wealth of cases of mortgage fraud have emerged following the slump in the housing market, as instances that had been masked by rising house prices have come to light.Recently, fraudster Feruza Mettrick was jailed for five years after attempting to scam lenders out of millions by stealing landlords’ identities, in a case heard at Leeds Crown Court.The mortgage adviser-turned-con artist, searched for properties which had no outstanding loans or borrowing against them via letting agents in the Leeds area.She then rented properties using fake documents and attempted to obtain mortgages for the properties by pretending to be the real owner.Mettrick managed to obtain over £500,000 using this method, but failed to defraud the total of £2.4million she would have done if all of her scams were successful and she wasn't caught.Lenders say only those instances where lenders believe something dodgy is going on will use the system, however, borrowers whose details do not add up due to a mistake on their application may also end up pulled in.And the taxman will also be able to use the system to check whether people have been understating earnings for tax purposes.
The
initiative involving HMRC, the Council of Mortgage Lenders (CML) and
the Building Societies Association will be launched on Thursday
following a pilot scheme involving two UK lenders.
However, CML director general Paul Smee said lenders found the pilot scheme useful in helping them to lend responsibly.He added: 'It has helped them to avoid lending in some cases where there is a risk of fraud, at the same time as giving them confidence about the borrower's credentials in some cases that they might otherwise have felt compelled to refuse.'The National Fraud Authority recently estimated the cost of mortgage fraud at £1billion last year.As well as aiding mortgage fraud prevention, the scheme will help HMRC to assess whether the information it has been given on applicants' tax affairs is correct. It is not anticipated that the scheme will have any significant impact on the time taken to reach a lending decision.