What is mortgage fraud and when does it occur?

Mortgage fraud occurs when someone defrauds a financial institution or a private lender through the mortgage process.


The criminal offence of fraud is defined in the Fraud Act 2006 and in the context of mortgage fraud includes fraud by false representation and fraud by failing to disclose information.

False representation

A person is guilty of fraud if he dishonestly makes a false representation, and intends, by making the representation to make a gain for himself or another, or to cause loss to another or to expose another to a risk of loss. The representation may be express or implied.

Failing to disclose information

A person is guilty of fraud by failing to disclose information if the dishonestly fail to disclose to another person information which he is under a legal duty to disclose, and he intends, by failing to disclose the information to make a gain for himself or another, or to cause loss to another or to expose another to a risk of loss.

Penalties for fraud

If found guilty of fraud, a defendant faces up to 12 months jail and a fine on summary conviction, or, on conviction on indictment, to imprisonment for a maximum jail term of 10 years and/ or a fine. They may also be subject to a confiscation order depriving them the proceeds of their crime under the Proceeds of Crime Act 2002.

What are the different types of mortgage fraud?

Mortgage fraud can be split into two distinct categories:

  • opportunistic mortgage fraud;
  • large scale mortgage fraud.

Opportunistic mortgage fraud

Opportunistic mortgage fraud occurs, for example, where an individual provides untrue or misleading information to get a higher mortgage than they should be entitled to, or fail to provide certain information which by law they would be required to disclose.

Opportunistic mortgage fraud will often occur when incorrect or misleading information is provided about the:

  • individual’s identity;
  • individual’s income;
  • individual’s employment;
  • individual’s other debt obligations;
  • other sources of funds for the purchase other than the mortgage;
  • value of the property;
  • price to be paid and whether any payments have been or will be made directly between the seller and the purchaser.

Large scale mortgage fraud

Large scale mortgage fraud as the name suggests is committed on a larger scale than opportunistic mortgage fraud and often involves several different properties, often being committed by criminal groups.

Currently the buy-to-let property market is extremely susceptible to mortgage fraud. This is in relation to both new-build apartment buildings and large scale renovation projects, the purchase of which criminal organisations will often be involved in.

Often large scale mortgage fraud involves:

  • the property being given an inflated value and the mortgage sought for the higher inflated value;
  • the nominated purchasers who are taking out the mortgage having no beneficial interest in the property and will often be made up;
  • properties being bought cheaply with a renovation plans in place, a mortgage will be sought some time later, on which payments will not be made;
  • using proceeds of crime money for the deposit, thus laundering the money and giving the criminal a property from which to carry out further criminal activity and make more money.

Often when the bank seeks payment for the mortgage the criminal group will raise another mortgage with another bank through another made up purchaser, meaning they have effectively sold the property back to themselves.

This second mortgage will generally be inflated, enabling them to pay off the first mortgage making a vast amount of profit in the process. A criminal group will often repeat this process many times.

When the bank eventually forecloses on the property due to the state of disrepair it has inevitably been left in, the property will be worth significantly less than the current mortgage.

Other scams

Large scale mortgage fraudsters will often seek to exploit non-bank lenders and existing corporate structures in their illicit schemes.

Non-bank lenders

Private sources of funding are also available for the purchase of property. Probably one of the best examples of a private source of funding is a property club which will lend money to purchasers of investors. Criminal organisations will often seek money from property clubs in relation to purchases of land abroad which in actual fact is simply a field with as yet no property built on it.

Existing corporate structures

In some cases, fraud will be achieved by selling the property between related private companies rather than the aforementioned made up individuals. Often a property will be sold many times between off-shore companies at continual inflated prices meaning that by the time the mortgage is sought from the bank or other institution the price is vastly inflated.

Article written by...
Nicola Laver LLB
Nicola Laver LLB

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A non-practising solicitor, Nicola is also a fully qualified journalist. For the past 20 years, she has worked as a legal journalist, editor and author.