"Mortgage deposit fraud stands as one of the most financially devasting scams individuals may encounter in their lifetime, with some experiencing losses totalling tens of thousands of pounds"
- Pete Mugleston - Online Mortgage Advisor
For most adults, a mortgage will be the single largest purchase they make in their lifetime, but with this comes the risk of becoming a victim of a mortgage scam. This not only adds to the pressures of choosing the right lender but also adds to the importance of spotting red flags before falling for them.
Given the substantial financial losses incurred and the challenges faced in recovering from mortgage scams, predatory lenders continuously adapt their strategies to avoid authorities and trap buyers. It’s essential to remain vigilant against predatory practices, whether you’re a first-time buyer, in a vulnerable financial position or considering refinancing.
Deposit fraud
Mortgage deposit fraud stands as one of the most financially devasting scams individuals may encounter in their lifetime, with some experiencing losses totalling tens of thousands of pounds.
Also known as "Friday afternoon fraud," deposit fraud typically involves criminals intercepting communication between homebuyers and their solicitors or conveyancers on completion day, often a Friday, hence the nickname. The fraudsters impersonate either the homebuyer or the solicitor, instructing the solicitor to redirect the funds for the property's deposit to a fraudulent account.
This scam exploits the time-sensitive nature of property transactions, as completion day is when large sums of money are transferred between parties. By the time the fraud is discovered, the funds are usually unrecoverable, leaving the homebuyer at a significant financial loss.
It is a straightforward yet remarkably effective scheme, catching victims off guard in an already unfamiliar process. A significant number of mortgage applicants become trapped in such schemes as fraudsters continuously refine their methods, devising increasingly convincing and intricate schemes to escape with individuals' hard-earned deposit funds.
It’s important to remain vigilant and become knowledgeable about the process. Solicitors will always inform clients about communication methods, especially when it comes to transferring funds. Law firms will never discuss banking details via email, so it’s advised that borrowers keep a hard copy of the firm’s bank details and always refer to them and cross reference when needed.
Upfront fee scams
Another common scam to consider is the upfront fee scam, which involves fraudulent individuals cold calling or sending phishing emails to unsuspecting homeowners, posing as legitimate mortgage lenders.
These scammers typically offer to refinance the mortgage at attractive terms but require an upfront fee to initiate the process. It’s crucial to note that reputable lenders are only permitted to charge specific upfront fees, such as booking fees, arrangement fees, and valuation fees.
Importantly, these fees can only be levied once the mortgage application is accepted, ensuring transparency and legality in the lending process. Therefore, homeowners should exercise caution and scepticism when encountering requests for upfront fees, as they may indicate fraudulent activity aimed at exploiting vulnerable individuals seeking mortgage assistance.
Such scams take advantage of the precarious situation of individuals seeking mortgage help, leading to substantial financial losses and emotional turmoil. It’s crucial for consumers to maintain vigilance and exercise caution when interacting with mortgage brokers and lenders, particularly when requested to pay upfront fees.
Baiting scam
Often referred to as the classic "bait and switch", this scam tricks borrowers by initially offering seemingly irresistible loan terms: ultra-low interest rates and monthly payments. After the borrower invests considerable time and effort in the financing process and prepares to finalise the deal, the lender executes a sudden turnaround, unveiling entirely different loan terms in comparison to the initial offer.
This tactic leaves many borrowers feeling trapped, believing they have limited alternatives and fearing rejection from other lenders. To safeguard against falling victim to this deception, steer clear of those aiming to catch your interest via advertising flyers or door-to-door sales pitches. Reputable lenders typically refrain from such promotional methods.
If you encounter interest rates and monthly payments that seem suspiciously low, it's probably too good to be true. Legitimate businesses aim to make a profit, not incur losses. If you struggle to grasp all the terms and conditions of an offer, it's a red flag indicating potential illegitimacy. Don't hesitate to request further information from the seller or loan officer, and if they cannot provide the necessary details it's advised to refrain from proceeding with them.
