Most common mortgage scams and how to avoid them

For many of us, mortgages are one of the biggest financial commitments we’ll make in our life. As a highly regulated industry, with excellent mortgage advisers and lenders, you’ll likely be in good hands when trying to find the right mortgage for you. But, when it comes to parting with your cash, it’s always best to be vigilant against potential mortgage fraud. By understanding some of the most common mortgage scams and how to protect yourself, you can be one step ahead in safeguarding your finances.

Take a look though our guide below, highlighting common mortgage scams, tips to avoid them and ways to verify the legitimacy of mortgage brokers and mortgage lenders.

Fake lender scams

Fraudsters posing as legitimate lenders or mortgage brokers can deceive you into providing personal information or making payments. These scams often involve offers that seem too good to be true, such as unusually low interest rates or guaranteed approval despite poor credit.

How to avoid this type of mortgage fraud: Always verify the credentials of any lender or broker you’re dealing with. Use resources like the Financial Conduct Authority (FCA) register to confirm their legitimacy.

Deposit fraud

Mortgage deposit fraud can be financially devastating for those who fall victim, with some people losing tens of thousands of pounds. You may have heard it referred to as ‘Friday afternoon fraud’, as scammers try to defraud homebuyers on completion day (which is often a Friday). Criminals will try to intercept communication between homebuyers and their solicitors or conveyancers, to pose as either party and ask for the house deposit to be redirected to a fraudulent account. It's a simple yet unfortunately effective scheme, taking advantage of the time-sensitive nature to catch people off guard during an already stressful process. 

How to avoid this type of mortgage fraud: Always verify communication methods with your solicitor, especially regarding fund transfers. Law firms will never discuss banking details via email, so keep a hard copy of your solicitor's bank details and cross-check them whenever needed.

Upfront fee scams

Another impersonation scam, where fraudsters will pose as legitimate mortgage lenders, contacting homeowners via cold calls or phishing emails. They’ll try and lure in victims with attractive refinancing terms but require an upfront fee to start the process. Remember, reputable lenders can only charge specific fees, such as booking, arrangement, and valuation fees, and only after your mortgage application is accepted.

How to avoid this type of mortgage fraud: This is a case of, ‘if it’s too good to be true’, it probably is. Always be cautious of any refinancing offers that require high upfront fees or seem quite aggressive, as it often signals a scam. Question where your money is going before you pay upfront fees and seek a second opinion from a trusted financial advisor.

Baiting scam

The classic "bait and switch" scam offers borrowers seemingly irresistible loan terms with ultra-low interest rates and monthly payments. After investing time and effort, the borrower finds out the final terms are drastically different. This leaves many feeling trapped, believing they have limited options.

How to avoid this type of mortgage fraud: Steer clear of lenders using advertising flyers or door-to-door sales pitches. Legitimate lenders typically avoid these methods. Always request full details from the seller or loan officer, and don’t proceed if they can’t provide clear information.

Appraisal mortgage fraud

In appraisal fraud, the value of the property is intentionally inflated or deflated by a fraudulent appraiser to benefit the scammer, often leading to financial losses for the buyer or the lender.

How to avoid this type of mortgage fraud: Ensure the appraisal is conducted by a reputable, independent professional. Check their credentials and look for reviews or complaints.

How to protect yourself from mortgage scams

When it comes to your finances, staying informed and vigilant is always the best way to protect yourself to avoid these common mortgage fraud schemes. Catching out red flags early can help you avoid falling victim to mortgage fraud.

1. Verify lender credentials

To avoid falling victim to mortgage scams, it’s crucial to verify the credentials of any mortgage broker or lender. Check their registration with the Financial Conduct Authority (FCA) and look for reviews or complaints.

Visit unbiased.co.uk  to find verified financial advisors and the Financial Conduct Authority (FCA) to check the credentials of brokers and lenders.

2. Review loan documents

Review loan documents carefully before signing. Pay attention to the terms and conditions, interest rates, fees, and any other relevant details. If something seems unclear or too complex, seek advice from a financial advisor or lawyer.

3. Reporting suspicious activity

If you think there’s suspicious activity taking place or suspect you’ve been a victim of mortgage fraud, report it immediately. Contact the Financial Conduct Authority (FCA) and Action Fraud, the UK's national fraud reporting centre.

Mortgages with Hodge

At Hodge, we’re committed to protecting our customers from mortgage scams. Our team ensures all transactions are secure and our customers receive transparent, honest service. We verify all brokers and lenders we work with, providing you with peace of mind throughout your mortgage journey.

Learn more about our mortgage options and how we protect our customers.

We’re proud to be supporting Take Five to Stop Fraud. This national campaign offers straight-forward and impartial advice to help everyone protect themselves from preventable financial and mortgage fraud. Fraud poses a major threat to UK businesses and individuals, from mortgage fraud to other sophisticated ways to target and deceive. Together, we can tackle financial and mortgage fraud in three key steps: stop, challenge, protect.

If you’d like more information, visit the Hodge scams and fraud hub.

This article is correct at time of publishing and for general information purposes only. We recommend you speak to a professional financial adviser for advice. You can find a financial adviser and further personal finance information at unbiased.co.uk.   

Your home may be repossessed if you do not keep up repayments on your mortgage.