HMRC, the CML and the BSA have just launched the Mortgage Verification Scheme aimed at combating mortgage application fraud.

The scheme has been piloted over the last year. In essence, lenders have the ability to refer any suspect mortgage applications (the suspicions usually relating to the borrower’s declared income or financial standing) to HMRC, which then cross references the declarations to employment and tax returns. HMRC then advise the lender (for a fee of £14) as to whether its own records tally with the declaration.

Such a scheme (assuming the lenders had put in place appropriate referral mechanisms) would have had massive benefit during the heyday of application fraud in the period from about 2004 to 2008. Fraudsters will now need to become more innovative in their approach.

For those defending lenders’ claims, particularly relating to lending made over the last year (a miniscule proportion of the total lenders’ claims in the market), additional enquiries should be pursued as to the lender’s use of this scheme. Whilst it would be harsh to allege contributory negligence against lenders on the grounds of their failure previously to create such a scheme, the fact it has been set up can be used as further evidence that the lenders themselves now recognise that their fraud prevention was woefully inadequate.