The City watchdog has banned a record number of firms that sell mortgages, pensions, investments and insurance.

As the economic crisis deepened and regulators clamped down on rogue businesses, the number of financial firms forbidden to practise by the Financial Services Authority rose by more than 50 per cent in the past year.

Using the Freedom of Information Act, The Times discovered that 107 firms were banned, of which one third were mortgage advisers. Many were guilty of mortgage fraud and had shown no compunction in inflating their own incomes and those of their clients. In one instance, a mortgage broker had duped a lender into giving one customer a home loan more than eight times their income.

Vince Cable, the Liberal Democrat treasury spokesman, said: “The dramatic increase in levels of fraud is truly shocking. As the wheels come off the economy, more and more cases of mortgage fraud are coming to light. People who, in the boom years, were happy to lie about their own or their clients’ incomes to secure ever larger mortgages are now coming undone.

“There is also a wider concern that people may be turning to fraud as they struggle through the recession. It is essential that the authorities remain vigilant to this.”

Police are working with banks and building societies to monitor suspicious mortgage applications. A report prepared for the Association of Chief Police Officers put the value of mortgage fraud in 2007 at £700 million. The figure rose again last year and is expected to be much higher this year. KPMG Forensic, a consultancy on fraud and financial crime, has warned that as the downturn unfolds, mortgage frauds by organised syndicates and individuals will become public, bringing to light fraudulent behaviour during the boom years.

Brian Dilley, a partner at KPMG Forensic, said: “As house prices continue to fall and there is a much smaller supply of mortgages, there will be more identification of things that were previously hidden. Some could be cases where people try to get a mortgage by deceiving the lender. A lot of lenders are now doing more detailed reviews of existing business and new lending and are looking more carefully at what brokers are doing.”

The FSA has powers to ban entire firms, if they fail to meet proper standards, and can levy substantial fines. It can also prohibit individuals from selling financial products. In 2008-09 the number of prohibited persons almost doubled, compared with the previous year, to 55. Since 2005-06 the number of banned individuals has gone up almost eightfold.

Last week the City watchdog banned the Dorset mortgage brokers Peter and James Dean for failing to prevent their firm from being used to perpetuate financial crime and for other serious regulatory failures. Peter Dean was also fined £17,500.

Last month the FSA withdrew authorisation from Eastbourne Financial Services, a business that claimed to offer a unique service to mortgage brokers requiring niche facilities. Nine people were arrested in police raids on suspicion of a £40 million fraud against Bradford & Bingley. Eight were linked to Eastbourne Financial Services.

A spokesman for the FSA said: “We have made a step change in the way we are dealing with mortgage fraud, including increasing fines to act as a deterrent.”

CASE STUDY: ‘She posed real risk to lenders’

S adia Nasir was the first mortgage broker to be both fined and banned for mortgage fraud by the chief City watchdog (Helen Nugent writes).

Ms Nasir was the director of an Ilford firm called London Mortgage and Financial Services Limited that traded as House of Finance for nearly three years. The Financial Services Authority discovered several irregularities and levied a fine of £129,000.

Her “numerous fraudulent mortgage applications” included seven containing false information about employment and earnings. In four instances she entered her bank details on applications for clients. She withheld sections of an application form from FSA investigators and failed to disclose to the FSA information relating to a county court judgment.

Last July, Margaret Cole, head of enforcement at the FSA, said: “Ms Nasir’s actions were serious and blatant, and she poses an immediate risk to lenders.”

Money Central: the 10 greatest conmen of all time

The Serious Fraud Office has set up a helpline in response to rising levels of fraud emerging as a result of the banking crisis. The dedicated telephone number – 020-7239 7388 – allows City workers to report instances of suspected fraud between 9am and 5pm. Calls made at other times will be recorded. There is also a referral form available on its website to report fraud via e-mail.

Explore UK News

• Crime News

• Education News

• Health News

• Scotland News

Times Recommends

• Why Witherspoon is highlighting domestic violence
• No, MP does not stand for Mostly Plastered
• Don’t bottle out of your champagne moment