News In Focus
Building society reveals massive buy-to-let fraud
Frauds related to buy-to-let mortgage loans have cost the Chelsea Building Society £41m, it was revealed today.
Announcing overall losses of £26m for the first half of the year, the society blamed collusion by professionals such as mortgage brokers and surveyors, who inflated the values of the properties in question over a period between 2006 and 2008. It said that it was "not a massive number of individuals" who were involved, and in many cases borrowers were continuing to make payments, unaware that their properties had been overvalued.
A spokesman for Chelsea said the frauds came to light after it decided to review all its mortgages after losing money with Icelandic banks last year.
Last year the Chelsea lost £39m, the largest annual loss to date by a building society and half as big again as the £26m loss that forced the takeover of the Dunfermline Building Society earlier this year. However the Chelsea, the fifth largest building society in the UK, said its underlying performance was strong, although directors admitted they were reviewing strategic options.
The Chelsea has stopped making any new buy-to-let and other higher risk loans. Its chief executive and finance director have agreed to resign.
In 2008 the Financial Services Authority told lenders to tighten their defences against fraudulent mortgage applications, after the Council of Mortgage Lenders warned of the risks associated with deals such as cash backs.