The investigation centres around an East Sussex mortgage brokerage called Eastbourne Financial Services, which is currently in liquidation and no longer FSA registered.
More than fifty officers from the City’s economic crime department, assisted by officers from Sussex Police, took part in the pre-planned operation.
The eight men and one woman arrested are between 29 and 73 years old and were arrested on suspicion of conspiracy to defraud and money laundering.
Arrests were made at six residential addresses in Sussex and North London and searches also took place at three business premises.
The arrests form part of an ongoing investigation into a mortgage fraud affecting mortgages taken out on more than 500 properties in the South of England between 2005-2007.
Detective superintendent Bob Wishart says: “The scale of today’s operation shows City of London Police’s commitment to investigate frauds and bring those behind them to justice.
“We know that fraud has the potential to impact on local communities and we are determined not only to work with colleagues across the UK to investigate such frauds but to liaise with other agencies to mitigate that impact on innocent people affected by the criminal greed of others.”
KPMG warns that more frauds are likely to be unearthed as house prices continue to fall.
KPMG Forensic partner Brian Dilley says: “As house prices continue to fall, there will be more and more of these cases surfacing.
“Lenders are now proactively looking at their loan books to identify indicators of such frauds.
“KPMG’s Fraud Barometer found that mortgage fraud cases grew in 2008, with 25 cases worth £36m in the year compared to just ten cases worth £3.7m in 2007.
“Mortgage frauds by both organised syndicates and individuals are going to become more visible the longer the current constrained market conditions persist.”