Detectives are investigating mortgage fraud rackets after lenders alerted City of London Police to an “unusually high” number of defaults on commercial and residential property loans over the past six months.

The reports have led the police to believe that criminal gangs, working with corrupt valuers and solicitors, are obtaining several mortgages at a time to build commercial property portfolios worth millions of pounds.

The investigation is also to look at mortgage fraud in the residential property market, particularly in the buy-to-let sector, after a rise in the number of complaints about the use of fake self-certification documents and fraudulent papers by individuals to inflate their earnings.

Fake P60 forms, used to illustrate earnings, are widely available online. The Council of Mortgage Lenders (CML) yesterday confirmed that lenders face serious risks from fake documentation rackets.

The City of London fraud squad has joined forces with the Serious Fraud Office (SFO), which is already investigating commercial property fraud in the West Midlands, as well as the Serious Organised Crime Agency.

Detective Chief Inspector Oliver Shaw, of the City of London fraud squad, said: “We have identified criminal networks that have obtained very large commercial and residential portfolios by working with corrupt valuers and solicitors.

“Banks and building societies simply would not have authorised these loans if they knew the risk they were taking up. We don’t know whether any of these loans have been syndicated or sold on to the market.”

Bernard Clarke, a CML spokesman, said: “Lenders are tightening their lending criteria to deal with fake forms. They don’t want to be exposed. When you think of the sums of money at stake, lenders have to be vigilant about mortgage fraud, and they are.”

The rise in mortgage fraud could add to the difficulties of some UK lenders already facing financial strain over their exposure to credit markets. James Cotton, from London & Country, a broker, said yesterday that lenders also faced risks from self-certification mortgages: “We have seen the impact of people lying in America. It is the same here. It’s just difficult to know the extent to which borrowers have lied about their income because the point of self-certification deals is that lenders don’t check.”

The first stage of the police investigation - establishing the lenders’ potential liability over defaults from fraudulent loans - is expected to be completed by the end of the year.