Liar Loans No More?

[Aquaman]

http://www.bbc.co.uk/news/business-14715129

Thanks to Shotoflight on the NI forum

[rantnrave]

I nominate Eric P to run that special unit at HMRC

[moonriver]

Lenders will be able to send suspicious application forms to a special unit at HMRC which will check an applicant's purported income against their tax details and those supplied by their employer."

I wonder how many forms they might deem as "suspicious" enough to get them checked in future?

[inflating]

I wonder how many forms they might deem as "suspicious" enough to get them checked in future?

Exactly my thoughts, the solution is for all forms to be checked, otherwise it's no more of a deterrent than the random audit some prospective mortgagors get already

Edited August 30, 2011 by inflating

[FIGGY]

All I read there is HRMC will be using this as a way to check my tax returns.

[Pent Up]

I bet Michael Coogan and all the other Fraudsters at the Council of Mortgage Liars are secretly distraught! Now how are they going to earn their money? Because good honest folk can't actually afford current mortgages.

[R K]

I wonder how many forms they might deem as "suspicious" enough to get them checked in future?

May I suggest the one from a Mr P Mandelson who was reportedly eyeing up an £8m house a few weeks ago.

[Gigantic Purple Slug]

I have some issues with the whole "Liar Loans" business.

I agree with Eric that people generally will borrow as much money to buy houses as the banks will let them have. This bids up the prices for everyone and is doubly unfair when the state has to bail them out because it is considered politically unacceptable to kick families out of their houses.

On the other hand, there are a lot of people on here (including me, if you believe it) that consider state interference should be kept to a minimum where possible and that banning self certification is state interference. I also think that for certain people such as business owners it is difficult to assess income in the same way as if you are on PAYE.

So I don't believe self certification should be limited. On the other hand it is clearly unfair if someone blags themselves a massive loan to outbid someone else on a house and then the state steps in with SMI when it all goes wrong.

What I reckon is that if the state believes it is politically unacceptable to turf people out of their houses they should issue state insured mortgages. For example if a borrower is state certified they are not allowed to borrow more than x time their income, have to prove their income on acceptance by PAYE methods etc. In return if they get into trouble the state will then pay SMI for a defined period.

The banks/People should also be able to take out mortgages under other conditions. But these mortgages should not be valid for SMI should the owner default. The banks clearly will charge a premium for this mortgage, but that's fair enough. The government could also impose a tax on this type of mortgage as well. to help fund SMI.

To me the problem isn't liar loans - it's not allowing the banks to reap the full consequences of issuing them that's the problem.

[inflating]

Perhaps it'll be a bit more potent than I'd thought - this anecdote relayed on HPC's home page commenting on this same topic

hash browne said...They're not messing about with this either.

A mate of mine, who is self-employed, just recently applied for a mortgage stating lets say an 'optimistic' income.

When asked by the bank for proof of previous years incomes, he submitted his books, which were produced by lets say a 'creative' accountant.

Anyway, to cut a long story short, he's not received any court proceedings for mortgage fraud yet but he has been hit with a big fat tax bill for the earnings he 'missed off' has last few tax returns.

Tuesday, August 30, 2011 05:31PM

[winkie]

Self certified loans were there to benefit the lender ie increasing house prices, high interest rates and fees.....lenders are not interested in the borrowers making money when prices are falling and interest rates are at an all time low.

[Saving For a Space Ship]

I nominate Eric P to run that special unit at HMRC

Elligible Resident Income Check Department

E.R.I.C. for short

[Giordano Bruno]

This is major isn't it?

HMRC to check people's declared incomes on mortgage applications, even as a possibility!

That's half of London up the FUBAR river.

I wonder will it be retrospective?

[kilroy]

I wonder how many forms they might deem as "suspicious" enough to get them checked in future?

Only a matter of time before an automated cross check. Mwahahaha

[NEO72]

Exactly my thoughts, the solution is for all forms to be checked, otherwise it's no more of a deterrent than the random audit some prospective mortgagors get already

Interesting that this is being brought in now though. When prices were going up, it didn't matter a jot if someone was telling porkies as the lender would be pretty much guaranteed their money back in the event of a default, so logically you would expect them to start actually checking dodgy applications now (60K pa for a part time job at poundstretcher - really?)

[jaspers]

This is major isn't it?

HMRC to check people's declared incomes on mortgage applications, even as a possibility!

That's half of London up the FUBAR river.

Will write to my MP tomorrow, reminding him of the letter I wrote last year with my concerns about SMI fraud due to lack of due diligence by the DWP in checking incomes. Now there is a scheme in place with HMRC, there's no excuse in not verifying incomes in those awarded SMI is there?

[ader]

I also think that for certain people such as business owners it is difficult to assess income in the same way as if you are on PAYE

Borrox.

Successful business owners have the option to pay themselves a salary via PAYE if they want.

Self-employed might have to prove bank statements showing their finances for the past year. So what?

I had to do just that and much more thorough financial checks when I first got a mortgage. I had to account for how much I would spend on food, gas etc. before the building society would lend me the money to buy my first house. And I was in a safe, permanent, public sector nhs job. Why should it be any different now? Prison to the liars and the complcit lenders imho.

Edited August 30, 2011 by ader

[Timm]

I have some issues with the whole "Liar Loans" business.

I agree with Eric that people generally will borrow as much money to buy houses as the banks will let them have. This bids up the prices for everyone and is doubly unfair when the state has to bail them out because it is considered politically unacceptable to kick families out of their houses.

On the other hand, there are a lot of people on here (including me, if you believe it) that consider state interference should be kept to a minimum where possible and that banning self certification is state interference. I also think that for certain people such as business owners it is difficult to assess income in the same way as if you are on PAYE.

So I don't believe self certification should be limited. On the other hand it is clearly unfair if someone blags themselves a massive loan to outbid someone else on a house and then the state steps in with SMI when it all goes wrong.

What I reckon is that if the state believes it is politically unacceptable to turf people out of their houses they should issue state insured mortgages. For example if a borrower is state certified they are not allowed to borrow more than x time their income, have to prove their income on acceptance by PAYE methods etc. In return if they get into trouble the state will then pay SMI for a defined period.

The banks/People should also be able to take out mortgages under other conditions. But these mortgages should not be valid for SMI should the owner default. The banks clearly will charge a premium for this mortgage, but that's fair enough. The government could also impose a tax on this type of mortgage as well. to help fund SMI.

To me the problem isn't liar loans - it's not allowing the banks to reap the full consequences of issuing them that's the problem.

I agree, and have a simpler solution.

If banks can't show a court they have carried out due diligence, they should only be able to take the house in the event of default, and be unable to pursue the borrower for any shortfall.

But that ain't gonna happen, so this is the best of a bad lot.

[Charlie The Tramp Returns]

Mortgage lenders have set up a formal arrangement with the tax authorities to cross-check borrowers' income information on their mortgage applications.

In my day 1969 the Building Society would write to the Employer confirming your earnings, we would give Fred as the Company contact who always put a few pounds on. Even then the mortgage max was 3x earnings.

[SirGaz]

Well, I've just gone Ltd company again after two years with an umbrella company, the biggest reason I'm doing it is to reduce my overall tax burden from a current 37% to something like 16%, It will probably hurt me in terms of gaining a mortgage when I feel the time is right to jump in but I hope the extra take home will increase my deposit substantially and 'fingers crossed' a reduction in prices means that no bank in their right mind would turn me down (very high LTV). I'll be fully above board and will make my savings mostly through the VAT flat rate scheme with a little bit of dividends thrown in.

I certainly don't have any issues with the banks performing what I consider to be due diligence

[Fairies Wear Boots]

I agree, and have a simpler solution.

If banks can't show a court they have carried out due diligence, they should only be able to take the house in the event of default, and be unable to pursue the borrower for any shortfall.

But that ain't gonna happen, so this is the best of a bad lot.

I totally disagree. People expect that when they go down a retail bank in this country and deposit their money, that they are going to get their money back. And I think that is fair enough. When you and Purple slug talk about the banks taking it on the chin, if they go bankrupt, it's not. It's the savers and/or the savers protection fund that takes a hit. Sure the banksters are out of a job, but if they can gamble with other peoples money to make a fortune then they are going to do that in order to get some big bonuses.

[gf3]

I totally disagree. People expect that when they go down a retail bank in this country and deposit their money, that they are going to get their money back. And I think that is fair enough. When you and Purple slug talk about the banks taking it on the chin, if they go bankrupt, it's not. It's the savers and/or the savers protection fund that takes a hit. Sure the banksters are out of a job, but if they can gamble with other peoples money to make a fortune then they are going to do that in order to get some big bonuses.

+1

I see no reason why a non paye person should be able to borrow more money than a tax equivalent paye. SMI must save the tax payer a fortune compared to housing benefit any way.

[Gigantic Purple Slug]

+1

I see no reason why a non paye person should be able to borrow more money than a tax equivalent paye. SMI must save the tax payer a fortune compared to housing benefit any way.

I don't think non paye people should be allowed to borrow more. Since everyone's income has to be defined for tax purposes it should be possible for anyone to prove their income on a year to year basis.

My experience as a small business owner though is that if you go to a bank and don't fit into the pigeonholed box of a PAYE employee who is on £xK per year you get looked at like you are some sort of alien from another planet. Maybe this is a recent thing, with banks trying hard to reduce the number of mortgages they issue. I didn't spend a lot of time trying to get a mortgage offer before 2007 so maybe it has changed a lot.

My income is not £xK per year, it can vary considerably from year to year. Whatever system is implemented needs to be able to accommodate factors like this.

[Rozza]

On the other hand, there are a lot of people on here (including me, if you believe it) that consider state interference should be kept to a minimum where possible and that banning self certification is state interference. I also think that for certain people such as business owners it is difficult to assess income in the same way as if you are on PAYE.

My guess is "the certain people" would be those for example who pay themselves a minimum wage and then take the rest of the money via dividends thus avoiding a chunk of the tax, so are you suggesting that these people should be allowed to borrow against the money they arent paying fair tax on. How about a big fat NO to that suggestion.

To me the problem isn't liar loans - it's not allowing the banks to reap the full consequences of issuing them that's the problem.

The problem isn't liar loans anymore, but it was massively a problem. The problem now is people who bought property they could barely afford in the vain hope it would always go up in price. And its true

Property only ever goes up in price..... apart from when it goes DOWN

Edit to add just seen your reply where you said "My income is not £xK per year, it can vary considerably from year to year." this is a slightly different case, what they should do here is look at the minimum £XK per year and base affordability on that, then if you earn more you can overpay if you wish, if you earn less then you couldnt afford the mortgage (If you get what i mean)

Edited August 31, 2011 by Rozza

[Gigantic Purple Slug]

I totally disagree. People expect that when they go down a retail bank in this country and deposit their money, that they are going to get their money back. And I think that is fair enough. When you and Purple slug talk about the banks taking it on the chin, if they go bankrupt, it's not. It's the savers and/or the savers protection fund that takes a hit. Sure the banksters are out of a job, but if they can gamble with other peoples money to make a fortune then they are going to do that in order to get some big bonuses.

I agree that this is an issue. But the issue of bankers risking trashing their businesses in the pursuit of profits is not limited to mortgages , but also extends to the entire banking practice and includes areas such as investment banking. In my mind it is something that needs to be looked at in a larger sense than just mortgages.

[Lord D'arcy Pew]

HMRC now have a powerful weapon to raise extra funds. Anyone found to have adjusted their income should be given one of two options.

1. Pay all outstanding tax on inflated income since start of mortgage

2. Prosecution for mortgage fraud and assist confiscated under proceeds of crime act.