Fraud On Buy To Let Loans Causes Losses For Lender
The Chelsea building society, the fourth largest society in the UK, has reported that it has made losses of around £41 million, due to borrowers with buy to let loans committing fraud on their original loan application.
As a result of this, the Chelsea has recorded a half year loss overall of £26 million. According to the society, the fraud was largely committed on buy to let loans offered between 2006 and 2008 and was mostly due to properties being over valued and therefore creating excessive loan to value ratios, which has since led to a high percentage of negative equity on existing buy to let loans.
In addition to the negative equity situation on many of its loan, the Chelsea has also suffered from an increase in loan arrears, although it claims that this problem is now improving. As a result of these problems, the society has reviewed its lending criteria and has withdrawn from buy to let, self certification loans, sub prime, or bad credit loans and commercial loans, leaving it offering solely residential homeowner loans at a maximum of 75 per cent loan to value.
Stuart Bernau of the Chelsea said “The society has been through a difficult period and reporting a loss in the first half of the year is disappointing. The underlying performance is strong even though we have had to make provision for impairment and fraud losses. In a competitive market, we have continued to attract strong retail inflows with our savings accounts increasing by over £38,000 in the first six months of the year, a testament to our strong and trusted brand.
Our mortgage lending is now fully covered by our retail deposits and this has significantly reduced our reliance on wholesale markets.”
