Letting agents must take action to combat fraud
AML Services Manager
As UK house prices continue to soar, with a reported annual rise of 10.3%, the average house purchase price in the UK is now at £294,910. Combined with rising interest rates and the cost of living crisis, household budgets are under increasing pressure, resulting in more people turning to rental properties to meet their accommodation needs.
The struggle for mortgage holders and potential homeowners is evidenced in the statistics and the increase in mortgage possessions.
Although mortgage possession actions were significantly lower than usual during the pandemic, Mortgage possession claims have increased by 39%. Mortgage orders for possession (2,382) are up 496%, warrants issued (2,419) are up 361%, and repossessions (770) are up 1,611% in the first half of 2022 compared to the previous year.
Inevitably and unfortunately, the above means some tenants, who have ended up with poor credit or in a desperate financial situation present a higher risk of fraud and money laundering, which can lead to an increased risk of tenancy fraud.
What is tenancy fraud?
Tenancy fraud is a criminal offence. Usually, the offence consists of one of the following;
Sub-letting (even part of the house).
Telling lies about an individual's identity or circumstances.
Key selling - passing on the key for payment.
How does it happen?
The below techniques (although not isolated to tenancy fraud) are some of the most common methods we see;
Fake email addresses or email addresses created for fraudulent purposes.
Websites to imitate employers' supporting references.
Doctored documentation like bank statements, proof of address, and payslips.
Faked previous addresses.
There is a real risk that prospective tenants provide a landlord or letting agent false or doctored identification documents, right-to-rent check information, income proof, or landlord or employer references.
In times of economic struggle, people can feel they have no other choice and will feel forced to do something they previously wouldn't have dreamed of.
Potential tenants may attempt to cover up issues such as County Court Judgements or adverse credit history. They may try to over-inflate their income or intend to sublet to make extra money.
Potentially, these individuals wouldn’t have met the affordability requirements to let the property. Resulting in a more increased risk of rent arrears in the future. It could also mean the individual is vulnerable to other situations, which could put the property at further risk.
As a result, implementing policies, controls and procedures that support scrutiny is essential in preventing fraudulent applications from getting through. Implementing technology can help in this process.
How can agents reduce the fraud risk before the referencing process?
Fraud is becoming harder to detect manually. When tenants are applying for a tenancy there are several steps landlords and agents should focus on, such as identification checks, tenancy references, affordability checks and source of funds where relevant.
To minimise the risk of fraudulent documents, modern ID verification, AML and open banking technology can help identify potentially problematic prospective tenants before they become a larger issue.
What steps can agents reduce fraud risk?
Meet the tenants in person or use trusted technology to obtain electronic verification.
Make the following checks;
Affordability checks using open banking to prevent the use of doctored bank statements.
Compare addresses on all the documentation and look for anomalies or use an electronic address match.
Request photo identification and verify its authenticity digitally.
Obtain references from employers, check out the companies and speak to them personally.
Obtain references from previous landlords – tip: Stay alert landlords can write good reference checks to get rid of bad tenants.
Make regular property inspections.
Build solid relationships with tenants and get to know them.
Have a clear and legally sound tenancy agreement.
There are also some red flags letting agents should watch out for in potential tenants when approached about a property:
They are looking to move very quickly.
They offer significant amounts of rental payments upfront.
They try to avoid, stall or refuse to go through the referencing process and identity verification processes.
They refuse to use the digital identity verification platform you provide.
Their story doesn’t make sense.
It may seem like common sense, but one of the fundamental points is to avoid taking things at face value. The best advice is always to check and then double-check, always remain curious, and ask questions. Make use of technology to ease the pressure on your staff.
Sometimes you have to trust your gut instinct.
Tenant fraud is increasing and will likely continue into 2023 and beyond. Letting agents need to be vigilant, do extra and regular checks and use technology to support and give added confidence and comfort.
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