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Dedicated to the taxpayers of Britain, and the employees of Her Majesty's Revenue and Customs (HMRC), who have to endure the monumental shambles that is HMRC.
Monday, 5 September 2011
The Great Mortgage Con Trick
As many of you know (and were so keen to discuss over the weekend) HMRC and our "respected" banks/financial institutions have come to a nice little arrangement wrt mortgage applications.
Lenders who "reasonably suspect" that mortgage fraud may be taking place will now send details of the application to HMRC, who will check income details against information provided in income tax and employment returns. HMRC will then advise lenders whether or not the details match.
On the face of it a nice little "result" for both the banks and HMRC.
The banks get a second pair of eyes to check that they are not being defrauded by some scallywag intent on overstating their income, in order to falsely obtain a mortgage (a criminal offence I would point out).
HMRC get the chance to identify scallywags who understate their income on their tax returns.
Milky bars all round!
However, and there is always a "however" when I direct my gimlet eye towards such a scheme, there are one or two flies in the oinkment.
The banks may well think that they have passed the buck for checking the veracity of mortgage applications to the state. Thus, as and when frauds get through the extra layer of bureaucracy (and be assured they will), they will be able to turn to the government and say "your own agency checked it, don't blame us".
In fact, banks being banks, they will then doubtless sue HMRC for negligence.
Re the concept of "reasonably suspecting" mortgage fraud, dare I suggest that if a bank has suspicions that a fraud may be being perpetrated then (under the terms of the remarkably "catch all" Anti Money Laundering legislation - wherein even the theft of a paperclip by an employee technically constitutes money laundering) it is legally bound to report the suspected crime to the authorities. Mortgage fraud and money laundering are becoming connected.
Passing on a mortgage application to HMRC does not constitute "reporting a suspected money laundering crime to the authorities". In short, if the banks really do suspect a fraud then they must report the suspected crime, and passing it to HMRC is in fact a potential crime in itself.
Based on the above are we therefore to assume that "reasonably suspect" in fact means that all mortgage applications will be passed to HMRC, or none at all?
Given how long it takes HMRC to deal with even the simplest of tasks/correspondence can you seriously see referred mortgage applications being turned around in the speed necessary for a house purchase to be completed?
In short the banks have rather shot themselves in the foot here, by adding an extra layer of tedious time consuming bureaucracy to an already moribund and dying market. They will end up lending less and thus make less profits.
However, from HMRC's point of view this is still a win win situation, given that they gain access to even more data on the hapless taxpayer.....or is it?
Taking into account the point I made earlier about being sued by banks when a fraud is perpetrated, HMRC should also be aware that if they deny someone a mortgage (because they tell the bank that the data does not stack up) they will also be liable to be sued if it turns out that the data anomaly is legitimate (eg fluctuating earnings) or down to a mistake made by HMRC.
Have HMRC really considered what the true costs (time and money spent on legal cases etc) of cock ups with this new scheme will be?
Rest assured there will be many cock ups!
As for the taxpayer/mortgage applicant, as ever they end up holding the shitty end of the stick. This scheme will add to the costs and time taken to obtain a mortgage, and will most likely kick the legs out from the very shaky housing market.
This scheme will backfire on all those involved (banks, HMRC mortgage applicants, house sellers).
Tax does have to be taxing.
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