Subcultural engagement for the 21st Century...
Barbelith is a new kind of community (find out more)...
You can login or register.

Underground > Conversation >

Mortgage Fraud

Page: (1)2

08:29 / 19.11.03

While I was up last night not sleeping, I saw an interesting show, the Money Programme, talking about how it is commonplace for mortgage brokers to use self-certification to just make up salaries so borrowers can get the amount they need. Some reckon this is responsible for the massive increase in property prices.

I was really shocked to learn that most lenders officially only lend 3.5x the borrowers' salary. Goddamm it, how does anyone stand a chance of getting a decent place?

The makers of the show seem to have succeeded in getting several mortgage advisors suspended and a number of companies to review their policies in the hope of putting a stop to this. If they're successful, apparently we can look forward to big reductions in house prices. I certainly hope so.

Has anyone had experience in this area? Has anyone on a sensible salary been able to get a mortgage on a decent place without bending the rules? Do you think this fraud should be stamped out, or is it a necessary evil?

08:41 / 19.11.03

We got our place using a self-cert mortgage. It's not so much that your broker lies about your salary, it's that they ask "can you afford to pay this mortgage" and you say "yes". Which is true anyway because as you pointed out the lenders only lend 3.5x the salary but mortgage repayments don't actually need you to earn that much.

It's funny I'd never thought about it that way round before: the self-cert mortgages causing the increase in property prices. I thought that my friends and myself were having to get self-cert because the property prices were so high.

Despite that I'm going to be hypocritical and say that it prob should be stopped, but only if the government can come up with some way of providing cheaper housing for those who need it. There's a gap in the market, the really destitute (and any pregnant sixteen year old) can get council houses but those who can't quite afford a mortgage of their own get stuck.

09:23 / 19.11.03

I think that 3 x your single salary is not a sensible figure anyway. I mean if the average income is £20,000 for example, that gives you a mortgage of £60,000. Garden shed anyone?

My sister and her fiance have just bought a flat, and they did a self cert mortgage. If they hadn't they would never have been able to afford a flat in London, and the repayments they have to make on the mortgage they did get are still less than their combined rent was. Personally, I think you should be allowed to borrow as much as you can show you can afford to pay back.

12:40 / 19.11.03

Although I think that generally one should play by the rules, there are some rules that it isn't practical or reasonable to play by. And only borrowing 3x your salary is one of them IMO. If everyone did follow this rule, no-one would be buying houses, and that would be no better for the seller than for the buyer.

So why would lenders make rules that couldn't possible be enforced?

Maybe it's because mortgage lenders charge higher rates on self-certified mortgage applications. Therefore people feel guilty enough about breaking the rules not to complain about the higher rates.

It's a clever trick. Make up a ridiculous rule which people will inevitably break, and then use their disadvantaged position (i.e. wanting to minimise contact with the lender at all costs) to screw them over.

I don't know if that's too cynical or not, but I can't help thinking along those lines.

12:54 / 19.11.03

Well, I kind of agree - but the view that noone can buy on 3.5 times their salary really only applies in London. Outside London most people will be able to buy something within that range. And it's just the mortgage companies protecting themselves (and in a way the buyer) against people defaulting if the interest rates go up. What you can afford on a 4% rate may be very different to what you can afford when it goes up to 10%.

13:27 / 19.11.03

i saw a show about this the other night, and it set me wondering about my own mortgage.
i just bought a house with my brother recently, and i worry that the ass will drop out of the market very soon.

have i been daft to get on the property ladder now?
will i find myself selling this place for what i paid for it, only twenty years from now?

13:43 / 19.11.03

There have been threats for the past five years that the housing market's going to crash. But probably not, and I'm sure you'll be fine. Even if prices fall back a bit, it's not likely to be an 80s style crash. Or so I'm reassured by people who know more than me!

And you're in Scotland, yes? I think it'll be London that gets hit badly, if it happens.

13:50 / 19.11.03

Once we talked about fucking shit up and now we talk of mortgages, oh how barbelith has changed...

13:56 / 19.11.03

but its a mortgage on a Fortress of Solitude, dude!
one that my brother and i share.
shut up.
SHUT UP!

14:03 / 19.11.03

That's the way it goes ... you'll be old yourself one day, my lad.

The resistable rise of Reidcourchie

14:54 / 19.11.03

Originally posted by Humble Pi
"Although I think that generally one should play by the rules, there are some rules that it isn't practical or reasonable to play by. And only borrowing 3x your salary is one of them IMO. If everyone did follow this rule, no-one would be buying houses, and that would be no better for the seller than for the buyer."

Er no, house prices would come down. The answer is cheaper houses, which will happen as obviously the market is responsive to demand, not putting yourself in more debt.

Personally I'm praying for a crash. Then I may be able to afford a place to live.

15:03 / 19.11.03

I wouldn't panic about a crash Toksik, basically you can never lose on property as long as you wait long enough to sell.

Actually the real reson we could afford the house we have was not the self-cert mortgage but the threat of an incinerator being bult two roads away. Everyone in this road were rapidly trying to leave because they thought it would get built, but we did some research and discovered that if the incinerator was built the fall-out would have been on some of the most expensive homes in the area so we knew it would never happen. Two years later we've been proved right, and this road is full of young couples who would never have been able to afford it otherwise!

15:03 / 19.11.03

Humble Pi:

"Although I think that generally one should play by the rules, there are some rules that it isn't practical or reasonable to play by. And only borrowing 3x your salary is one of them IMO. If everyone did follow this rule, no-one would be buying houses, and that would be no better for the seller than for the buyer.

So why would lenders make rules that couldn't possible be enforced?"

The rule is only unworkable now that house prices are so f---ing ridiculous, and have risen at a rate well above that of average earnings. 6 years ago, when you could buy a 2 bedroom terraced house round our way for 45 grand, it was perfectly workable for anyone earning a reasonable amount. Those same houses now cost about 110/120 grand.

Ariadne:

"Well, I kind of agree - but the view that noone can buy on 3.5 times their salary really only applies in London. Outside London most people will be able to buy something within that range"

No way! See above (I live in Portsmouth). Even a single person earning 20,000 is hard pressed to find anywhere - a crappy 1 bedroom flat is between 70 and 80 thousand.

Slight tangent - are house prices included in the calculations they use to work out the rate of inflation?

15:17 / 19.11.03

Sorry Saveloy - I suppose I was basing that on Scotland (and not even the cities in Scotland), and I don't really know prices elsewhere.

15:17 / 19.11.03

Saveloy -- No, house prices are not taken into account.

The problem with over-borrowing is not apparent until mortgage interest rates go up and the house you in theory own becomes beyond your pocket.

But mortgage companies and estate agents would have planned for that, wouldn't they? After all, they're not just in it for the quick buck, money for old rope, monthly sales commision ...

15:41 / 19.11.03

Spidermonkey - When you realised you'd pulled that off, did you do a little victory dance? Seriously, that's so fucking cool! I hope you talk down to your neighbours just a little bit...

15:48 / 19.11.03

S'okay Ariadne, didn't mean to sound cross (sorry if I did), 'extortionate house prices' is one of my little bugbears at the moment. It might not be so bad if I didn't keep seeing headlines in papers that say things like "Good News - House Price Boom Set To Continue!" Bah! I'm with Reidcourchie....

The resistable rise of Reidcourchie

08:04 / 20.11.03

I spent the summer trying to find affordable property to buy in Leicester. I'm now in good old fashioned rented. I could get a mortgage to cover the house prices but I didn't like the look of the sums and of course even a small rise in interest rate would've completely screwed me (which whilst all you self certers annoy me a bit because you are basically allowing the price to keep on going up I'd advise you to check the figures on interest rates and your repayments, it doesn't need much of a rise to put £50 or £100 onto a mortgage each month).

Pardon the sour grapes, I'm still a bit pissed off about this and I have an awful hangover this morning.

The resistable rise of Reidcourchie

08:05 / 20.11.03

Anyone up for a mass sigil for a housing market crash?

I feel so hip right now.

08:09 / 20.11.03

House prices round here are absolutely absurd. I think probably worse than many areas of London. A two up, two down terraced house in Cowley or Jericho will be put on the market for £250,000. £250,000! And you can buy a crummy bedsit on the top floor of an apartment block in Iffley for a bargainous £90,000.

Scrubb is on a downward spiral

09:01 / 20.11.03

Ditto Brighton - there's nothing to be found for under £100,000, not even half a bedsit in Embassy Court (aka "Beirut"). What's really frustrating (and I guess the same holds for Oxford) is that despite effectively being suburbs of London with comparable prices, there's no extra London weighting to help cope with the stoopid stoopid cost of living.

12:10 / 25.03.04

The problem we are now encountering with house prices relatee to two areas.
Supply and Demand and also The ablity to pay.
Now the rapid rise of about 23% a year has drawn in investors to buy homes to rent rather then to live in. This has pushed prices to the heights we now see.
Or have they, this rise would be capped by the second factor "ability to pay" which experts say would have hit a ceiling over two years ago.
Now the seld cert mortgages have removed the ability to pay with people fraudulently taking out mortgages.
Now the house prices are proprtionally 40% percent higher then the eighties point of crash.
and although people claim that no news is reported about a percieved crash remember that if this came from an official source then the first time buyers would wait and a crash would be caused.
Look at the warning signs.
Be careful
Concerned about being able to afford to buy a home? all you have to do is to request a police investigation into all mortgages and this would be carried out. How could you ensure this?
With evidence of only a few people who have fraudently taken out mortgages the police could be contacted and made aware of the fraud. For them to take no action would make them "Complicit to fraud" as our not reporting it to them makes us "complicit to fraud" and worse if the police refuse to investigate the crime and the officer who decides not to investigate owns a property he is "Complicit and profiting from a fraud he has taken no action against" and who would then be forced to resign and face criminal charges.
This bubble is much bigger then it has been before the main bedrock of this bubble is fraud.
(Do you think it isnt... in devon to buy the smalles property... really nasty.. and income of over £35,000 is required)

Report the crime. Insist action is taken.

Goodness Gracious Meme

12:18 / 25.03.04

King Scrubb. Exactly. Brighton's extreme, but most of the South East is becoming steadily difficult for people to afford. 'specially on their own.

Brighton *is* fucking lunatic though. Suspect self-cert-ing is pretty common round here.

12:24 / 25.03.04

and spell check your replies...! I didnt... Hell most of the above barely constitutes English...
ahem...
Think of the Blair Rich.. the wealth of the people of England.. How much of that is based around the equity most people hold in their homes.
Now look at the Blair poor..
The kids, at school.. Planning to go to University... and buy a very modest home.
they will need to find on average £100,000 more then they would have had to seven years ago..
thats a million for every ten students.. todays figures would show and average school sending 45% to University is populated with youth who together would have to find £78,000,000 to fund the blair rich. To be quite frankly that would be very nice of them..
accross the pond the american government has stepped in now.. for the last three years their house prices have risen by about 2% above inflation. Action is being taken to slow this.
We are stood smiling as it has gone past 20% for many years..
Telling each other that this time it will be different, that it wont crash as it has in these cylces for over a hundred years...
the swings have gone higher the crashes bigger but these can be traced back to the first records.
Now take away self cert...
who is going to buy that small two bed terrace for £170,000...
Not me..
Not a qualified doctor... a solicitor..

the big professional earners..

The market is a powderkeg... I am waiting..

12:26 / 25.03.04

I was refering to my english...! the other reply sneeked infront of mine... sorry.. no offense..!

12:45 / 25.03.04

But we are pwerless while we do nothing. If we take action now is it selfish.. Exposing those who just bought.. Or is it protecting those who will soon. do we allow them to clime forever and accept that we and others like us will never afford a home as the prices climb and climb...
for the prices to not come down is an economic impossiblity where it has become impossible to buy..
sorry state for a sorry country.

21:10 / 25.03.04

Surely house prices won't go down unless there is a general recession - and then you are likely to be so screwed by that you can't afford to buy. I prefer just to throw money away renting gorgeous flats that I can't afford to buy.

21:39 / 25.03.04

HB: Man, honestly, I can't really see why you've brought this up.

If the buyer's happy enough to lie about their salary, and the estate agent's prepared to fill the relevant forms, who honestly cares ?

The resistable rise of Reidcourchie

07:27 / 26.03.04

Me because they are driving up house prices beyond what I can afford to pay and I hate my landlord and don't like giving him money.

Ex

07:44 / 26.03.04

If the buyer's happy enough to lie about their salary, and the estate agent's prepared to fill the relevant forms, who honestly cares ?

And the inflated house market is leading to a fuckload of people borrowing against the anticipated worth of their house. Which is, again, their problem, but I suspect it may fuck the economy if the house boom collapses, even more than it did last time. Although I haven't a biscuitty clue how, as I have little financial nowse. Anyone who understand money care to back me up while I fan myself in the orangery and read a three-volume novel?

12:29 / 26.03.04

We are not the only ones who are investigated in homes... (When I say we I mean individuals.. I can afford a tent from millets personally..) Pension Companies and other investment houses are also buying and believe me... When and if the market slows or looks like it is going to be a downturn they will shed the homes back onto the open market.
Supply and Demand... There are enough homes if only people who wanted to live in the damn things owned them.. second homes and invesments are being bought as a large proprtion of the current market.. If there was a true lack of homes then you would also have no-where to rent.. not just buy..
so essentially you have a great deal of people out there with several homes and a great deal of epople just wanting one..
Not fair... but its life...

But it is illegal.. The self certs support the current house prices.. without them you cut first time buyers completly from the market.. They are illegal.. enough of you talk to the police report this and demand action then it will have to be taken..
If you dont watch and weep as you never afford your own place..
Or the bubble bursts.. As it always has.. and will again.

all fun...!

13:02 / 26.03.04

Okay. financial impact of house price crash.
If you have bought a property two years ago for £90,000 where it was wort £45,000 three years before that and it is now worth £130,000 you technically now have a £40,000 equity. But only if you sell can you realise the money, otherwise this equity is locked into the value of the home. which might go up... or down.
Now few are selling. a lot are borrowing against the percieved value of their property or remortgaging into the equity they have.
So a remortgage up to £120,000 gives them £30,000 to play with and £10,000 still in equity..
but also leaves you with a £120,000 mortagage agains a crappy flat in stabsville even if it now has a nice kitchen.
so prices go down you still owe £120,000 and your flat is now worth
£60,000 you have a lot of debt and nothing of that value..
Negitive equity. or the overnight debt of £60,000..
this was for EX who asked.

who can spot my favourite subject... although I am new... nice to meet you all...!

21:42 / 01.04.04

Borrowing calculated on what you can afford to repay each month isn't exactly future proof. Imagine the amount of repossessions if the base rate shoots up...

22:12 / 01.04.04

One of the other key factors is the 'buy-to-rent' market. A lot of people with significant financial clout are buying up flats and houses, securing a 100% mortgage, and then using the rent to cover the repayments and earn a bit of profit. Take a £150,000 flat in any one of our overpriced cities, for example. You could expect to charge somewhere in the region of £800 a month in terms of rent. With interest rates at 5%, the mortgage repayments come to £7500 per annum. The rent provides £9600. If interests rates were to increase to 6%, the repayments would go up to £9000. The landlord is now only making £600 profit every year, half of which we can expect will go towards maintaining the property. Push interest rates up to 6.5%, and the landlord is now losing £150 a year through the mortgage repayments alone. Ze could try pushing the rent up, but that's going to seriously limit the number of people who can afford it. The only real option is to sell the property as fast as possible, meaning a lower sale value. This wouldn't be the same for people with mortgages on their own homes, however, as they should still be able to afford to live where they are. The rise in interest rates would really only reduce the viability of housing as a profitable area for the buy-to-let venturers.

08:53 / 02.04.04

But what about those of us who don't have a proper salary? I make my living from various temporary and short-term contract jobs, and a bit of freelancing, and no-one would have given me a mortgage if I weren't self-certifying. Which given that my mortgage payments are sixty quid a month* is ridiculous.

*It's a long story.

Page: (1)2