Mortgage frauds rake in at least £700m a year and are linked to the financing of organised crime and perhaps even terrorist "safe houses", chief police officers claim today, in the latest sign of mounting official alarm about the problem.
The Association of Chief Police Officers says mortgage scams are a "significant element" of annual fraud losses and are attractive to criminals because they offer high profits and low risks of detection.
The Acpo claims - which echo concerns expressed by the Financial Services Authority - will focus further attention on whether mortgage fraud is in part to blame for distorting the property market and inflating house prices.
Mike Bowron, Acpo lead on economic crime, said the police were setting up a joint intelligence operation with the FSA and the finance industry as part of a wide-ranging crackdown on mortgage fraud.
Mr Bowron, who is also the commissioner for the City of London police, the lead national force on fraud, said: "Long gone is the notion that fraud is a victimless crime and through this sort of joint approach we are working effectively to end it."
Acpo's claims are contained in a public summary of a confidential intelligence report that it has sent to police forces and finance industry members across the country. The report was commissioned at the request of Fin-Net, a financial crime intelligence unit hosted by the FSA.
Acpo says confirmed cases of mortgage fraud - almost half of which are in London - have reached £700m a year, affecting both commercial and residential property. While this is a tiny fraction of the £370bn annual mortgage lending market, observers say it is likely to be a conservative estimate.
Acpo says organised mortgage fraud takes many forms, from the overvaluation of "new build" residential properties through to the ramping up of commercial property values.
The turn in the housing market has revealed the extent of bad loans, making it harder for lenders to turn a blind eye to discrepancies between mortgage valuations and what houses are actually worth.
Acpo says organised criminals are using property sales to launder the proceeds of activities such as drug supply, human trafficking and prostitution. While there is no evidence to suggest mortgage fraud is directly used to fund terrorist acts, it could be used to finance infrastructure such as "safe houses".
The FSA is investigating 200 cases of mortgage fraud, while the Metropolitan police has launched a probe into 84 flats built in Thamesmead in 2006. Investigators suspect the flats were resold at greatly inflated prices using mortgage brokers and chartered accountants to fraudulently provide inaccurate mortgage applications to genuine buyers.
