Post-MMR, lenders are devoting resources to monitoring application fraud and despite the regulatory responsibility for confirming affordability sitting with the lender, the adviser community needs to adapt to the changing landscape.
At the same time, lenders are looking to manage their risk exposure on business introduced to them by intermediaries so that they can control provisions for bad debt and fraud which weaken balance sheets at a time when they are being required to show greater financial strength.
Lenders have already identified a rise in scheme abuse and as a result are making bigger provisions for losses. If the trend continues, the equation is simple – more losses equal less to lend.
While this will help market integrity overall, advisers who fail to meet the lender’s requirements risk suspension or expulsion.
Under the MMR, advisers have had to adjust their regime and drill down a lot deeper into the applicant’s actual expenditure before submitting applications in some cases. Some lenders have adopted benchmarks to test the reasonableness of stated spending, for example, using national data on socioeconomic groups. From an adviser’s perspective, if the spending or income appears implausible then more data verification and proof will be required. You might consider if income cannot be satisfactorily verified, how do you know it is not from the proceeds of crime?
Lenders have increased the sophistication of the tools at their disposal and less plausible applications with inadequate verification will result in cases being bounced back, detrimentally affecting adviser’s metrics with the lender and wasting their own time in addressing the queries or resubmitting elsewhere.
Advisers are expected to be alert to and where possible avoid scams such as below market value transactions, credit score manipulation, deposit fraud, distressed sales, false employment claims, hidden buy-to-let usage and property hi-jack before passing files over to lenders.
Being content to just move onto the next lender if a case is rejected without understanding why is likely to prove detrimental to the adviser in the long term. Lenders are monitoring such data in much greater detail and successive dismissals could mean there will not be a ‘next one’.
Checking need not be complex either. Calling someone’s place of work to verify the employer exists and the client works there for example, is one of numerous rudimentary measures that can be executed in minutes.
Engaging with lenders is another easy to implement safeguard. They want to help you to get it right and it is a win-win for both lender and adviser, so speak to BDMs and ask for support.
Pay extra attention, too, when having cases introduced. How well do you know the source? Is it trustworthy? So ensure you undertake some due diligence on introducers to avoid being used to facilitate financial crime.
And, do not forget that lenders also access evidence of failed applications made elsewhere.
Simon Thomas is head of policy of Tenet Group
