The UK's fourth largest building society has revealed that large scale fraud by buy-to-let mortgage customers has caused it to lose some £41 million.
As a result, Chelsea Building Society posted half year losses of £26 million before tax.
"The Society has been through a difficult period and reporting a loss in the first half of the year is disappointing," said Stuart Bernau, Chelsea's chairman and interim chief executive.
Chelsea said it has identified fraudulent loans in its buy-to-let mortgage book, which took place primarily in the period of 2006 to 2008. The fraud was 'mainly as a result of the artificial inflation of property values by third party professional involved in the transactions.'
The building society has taken firm action as a consequence, with its £242 million of new lending all less than 75 per cent loan-to-value. Chelsea said the move reflected its risk adverse approach to lending.
All new lending is now exclusively for prime residential borrowers, after it took the step of freezing lending to sub-prime, self certification, buy-to-let and commercial business late last year.
Further impairments were suffered because of mortgage arrears and decreasing property values. However, recent trends suggest that the number of mortgages in arrears is beginning to level off.
Whilst acknowledging the results, Mr Bernau said: "The underlying performance is strong even though we have had to make provision for impairment and fraud losses.
"In a competitive market, we have continued to attract strong retail inflows with our savings accounts increasing by over 38,000 (taking the total to 606,000) in the first six months of the year, a testament to our strong and trusted brand.
"Our mortgage lending is now fully covered by our retail deposits and this has significantly reduced our reliance on wholesale markets."
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