Experian predicts there will be a dramatic increase in attempted mortgage fraud in the UK next year, bringing the number of people fraudulently trying to obtain home loans to the highest level since records began in 2009.
A total of 43 out of every 10,000 mortgage applications are expected to be identified as fraudulent in 2013 – marking a rise of 13 per cent on 2012 figures and 26 per cent on 2011. The majority of attacks are likely to continue to come from first party fraudsters – essentially individuals misrepresenting their own financial circumstances and employment statuses or attempting to hide adverse credit histories.
Meanwhile, Experian’s latest Fraud Index*, which highlights the evolving nature of the fraud threat facing the UK’s financial services sector, also revealed that attempted mortgage fraud in the third quarter of this year was up six per cent on the same period in 2011, with 38 in every 10,000 applications deemed fraudulent – compared to 36 in every 10,000 12 months ago. It is also the first time within the past year that mortgage fraud has overtaken current account fraud as the area targeted most frequently by fraudsters.
Overall, 17 in every 10,000 applications received by financial institutions in Q3 of this year were detected to be fraudulent – seven per cent more than the same time last year, with savings accounts seeing a rise of 58 per cent. But attempted fraud in the automotive finance sector fell for the sixth consecutive quarter, with 15 in every 10,000 fraudulent applications discovered between July and September 2012 – down 29 per cent when compared with 2011.
Nick Mothershaw, Director of Identity & Fraud Services at Experian in the UK and Ireland, said: “Almost 90 per cent of mortgage fraud tends to originate from genuine individuals misrepresenting their financial situations attempting to buy property that would ordinarily be out of reach. With tougher rules on UK mortgage lending set to come into force in 2014, where lenders will have to put a borrower’s ability to repay under greater scrutiny, it important that they have the correct tools in place to do this, especially as attempted fraud in this industry is set to increase significantly over the next 12 months.
“Increased fraud levels in specific industries mean that it has never been more important to ensure that applications for new credit facilities are analysed for signs of fraudulent activity. Simple steps organisations can take to mitigate risk include robust checking of new applications for credit using tools that reveal first party fraud and organised fraud rings, continually reassessing fraud risk across existing accounts and introducing true identity authentication using facts only a genuine applicant will know on all products, not just the higher risk ones.”
Fraud rates by financial product type:
Automotive finance fraud
The automotive finance industry saw a 29 per cent decrease in the third quarter of 2012. Up to 15 in every 10,000 applications were discovered to be fraudulent – down from 21 in every 10,000 applications last year. Attempts at hiding adverse credit (60 per cent) was still the most common method when applying for automotive finance, followed by ID theft (13 per cent). The fall in automotive fraud was due to the amount of investment that has been made in optimising fraud platforms, suggesting identity capabilities and verification technology are improving across the sector
Savings account fraud
Savings account fraud has risen by 58% when compared with the same period last year – from 7 in every 10,000 applications, to 11 in every 10,000 applications. The vast majority of fraud is conducted by third party individuals, often perpetrated for money laundering or sleeper fraud purposes.
Attempted fraud nudged up marginally (9%) insurance sector. As a result, 12 in every 10,000 applications for insurance products were found to be fraudulent – slightly up on the 11 in every 10,000 applications a year ago. More than eight out of 10 (84%) of insurance fraud attempted between July and September was committed by first party fraudsters.
Credit card fraud
Around 15 in every 10,000 credit card applications were discovered to be fraudulent during the third quarter of 2012 – an increase of 16 per cent a year ago, equating to 13 in every 10,000. Third-party fraudsters are responsible for the majority (68%) of credit card fraud.
Current account fraud
Attempted current account fraud increased slightly by four per cent in the third quarter of 2012, but it has now fallen to second place behind mortgages as the most targeted financial product. A total of 31 in every 10,000 applications were found to be fraudulent – up from 30 in every 10,000 in 12 months ago. During the past year, current account fraud has been driven primarily by first-party fraudsters, who have consistently been responsible for nearly seven out of 10 (66%) of attempts.
Loan fraud has remained at the same level it was in Q3 2011 – at six in every 10,000 loan applications.
* Experian’s Fraud Index is based on data derived from National Hunter and Insurance Hunter, the UK’s leading fraud prevention systems, operated by Experian on behalf of their members. These systems enable financial institutions to cross-match applications against over 100 million previous application records in order to spot commonalities and anomalies that are potentially indicative of fraud for further investigation.