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.