February 5, 2008 | posted by Pam Atherton in Banking, House prices, Mortgages |

If you’re tempted to indulge in a spot of schadenfreude at the woes of the US sub prime market, think again. The UK needs to confront the extent of its own mortgage fraud and mis-selling .

A BBC1 Panorama programme screened this week showed evidence of alleged collusion between property developers and solicitors, with the aim of  inflating the value of buy-to-let properties in Docklands and the north of England.

In some cases, the solicitors, allegedly acting in collusion with the property developer, provided the Land Registry with inflated sales prices in order to boost valuations on other properties being sold in the same development.

In other cases, the property developer concealed the fact that it had paid the deposit on behalf of the borrower, so that the lender was unwittingly providing a 100 per cent mortgage and the borrower was in negative equity from day one.

Either way, borrowers overpaid for their properties, as well as being mislead about the amount of rent and the quality of tenant they could expect. Once the borrower defaulted and the properties were re-sold, the gap between the  purchase price and the true value of these properties became alarmingly apparent.

However, these are just two examples of the way in which house prices have been ramped up in recent years, by those with vested interests in seeing property prices soar. 

In a tight market, estate agents are always keen to encourage vendors to sell via ‘sealed bids’ – a pernicious practice which invariably encourages desperate purchasers to overpay, which is great if you’re trading down, but a nightmare if you find yourself bidding blind in what is effectively a house price auction.

And that’s not to mention all the skullduggery that has gone on in recent years in the self cert. and sub prime market. Call me a doom and gloom merchant, but I can’t believe there isn’t more bad news to come on the property front. The Council of Mortgage Lenders’ figures on arrears and repossession due to be published on Friday, may provide a pointer to what’s in store.