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FSA warns of fraud risks in quick property sales

FSA Front 480

The FSA has warned borrowers in financial difficulties who are looking to sell their home quickly to beware committing fraud.

The regulator says it has evidence that some below market value or distressed property sales involve fraud, where the buyer – a company or an individual – asks the seller to state the property has been sold for full market value, rather than the agreed price.

The FSA says this is usually done so the buyer can borrow the full amount they have agreed to pay for the property, which would not happen in the current market as lenders require at least a 5 per cent deposit.

These types of below market value sales also allow the buyer to borrow at rates normally reserved for loans with a lower LTV, because the lender believes the buyer has a deposit for the property.

For example, if the buyer is paying £120,000 for a property they are unlikely to be able to borrow the full amount, as there are no 100 per cent LTV mortgages left in the market, apart from a handful of guarantor mortgages.

But by telling the mortgage lender they are buying the property for £150,000 but only need to borrow £120,000 – 80 per cent LTV – the buyer will be able to access a mortgage deal that will cover the entire asking price and at better rates than at a higher LTV.

The FSA says: “Misleading the lender in this way is fraud and both the buyer and seller could face prosecution.”

In particular for those selling their home, the regulator says that if they are in financial difficulty and getting assistance from the state paying bills they could risk losing their benefits payments as it may be assumed as a result of the sale of the property they have additional money.

The FSA is also warning against dealing with unauthorised sale-and-rent-back providers and firms providing lease options.


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. The financial world has melted down, the FSA is wound up next year, RDR is just around the corner and we get the FSA wasting resources on this when the most that will be lent is based on the lower of purchase price or valuation i.e. unless there is a very dodgy 3rd party valuer the market risk is negligible. But God Bless the FSA – no stone unturned in search of trivialities which don’t need fixing in while it misses all the big issues…

  2. – So it’s fine when the banks rip their customers off, but they dont enjoy it the other way round. And it was okay when they encouraged borrowers to lie about their incomes, but this latest ploy of inflating the selling price is fraud. The banks want it all their own way – pathetic lot !

  3. Surely the lenders can ask for evidence that the other deposit has been paid. I would have thought that was a given.

    Confirmation from a bank that the money was transferred to the developer, for example.

  4. Am I missing something here, but wouldn’t the solicitor also have to be complicit for this fraud to actually happen?!

  5. The Lender instructs an independent/panel Valuer who gives a valuation for mortgage purpose. Why is it classed as Fraud if the distressed seller decides to help the Buyer with their deposit to sell the property that they obviously are struggling to sell under normal circumstances. It’s OK for the Lender to evict them and sell the property at a lower than Market Value and set the Debt Collectors on to them. Me thinks these Canary Wharf Green House Bafoons should visit the real world……………

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