Pyramid scheme costs banks £271 million

Fraudsters take a bite out of the housing market with a pyramid scheme. According to accountants at BDO Stoy Hayward mortgage fraud will cost the banks who lent to the housing market at least one billion pounds. The worst hit seems to be the Bradford & Bingley with over £271,000,000 in write downs.

The main market that seems to have taken the brunt of the fraud was the “Buy to Let” market. The fraud works simply and as long as the housing market was on the rise, was easy to hide and repeat.

The way in which the fraud worked involved the collusion of lawyers and valuers to inflate property prices in order to borrow more than the property is actually worth. The buyer would then place the property back on to the market at an even higher price allowing another buyer to borrow again in effect creating a pyramid of fraud.

Other examples included developers taking loans on blocks of flats secured against the rental income

A £500,000 property, for example, would be sold for £700,000 with 85pc of the price – or £595,000 – borrowed from a bank. The £95,000 would then be shared between the valuer, lawyer, buyer, seller, and intermediary. As long as rents and prices were rising the fraud could be concealed and, often, repeated.

Other examples included developers taking loans on blocks of flats secured against the rental income. Fraudulent contracts would be presented to the banks as proof of rent. In most cases, fraudsters move their profits offshore and declare bankruptcy when the market crashes or rents fall short, leaving the bank with a property worth as little as half the mortgage value.

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This entry was posted on Sunday, August 23rd, 2009 at 2:59 pm and is filed under Buying Property in Shropshire. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.