The credit crunch is turning Britain into a nation of liars who exaggerate their income and cover up patchy credit records to obtain loans, mortgages and insurance payouts.

Cifas, the UK's fraud prevention service, says that there has been a 24 per cent increase over the past three years in the number of fraudulent applications made for credit and insurance. In each case, individuals had told lies or had supplied false or altered documentation to support an application.

Peter Hurst, of Cifas, says: “The increase in application fraud demonstrates that because people are getting into debt earlier, and the credit crunch has diminished their access to finance, they are now resorting to fraudulent applications for funds.”

Frequent lies include concealing a poor credit history and exaggerating the time that the applicant was resident at an address. Passports, utility bills and bank statements are also being forged to support applications and female fraudsters are alternating between using their married or maiden names, depending on which they feel will yield them the most success.

Mr Hurst adds: “Those who think that lying on application forms will give them an advantage need to realise that their efforts are counterproductive. Fraud data-sharing means that such lies are easy to detect. Far from enhancing an applicant's chances, they will have a detrimental effect. Telling the truth, even if it is slightly less palatable, remains the best policy.”

Insurance payouts

Almost one in ten insurance claims is found to be fraudulent, costing the industry £1.6 billion a year and adding an estimated £40 a year to the average insurance premium, according to the Association of British Insurers (ABI).

Malcolm Tarling, of the ABI, says: “Insurers are cracking down on fraudulent claims and it is a crime taken very seriously by us. We know the tell-tale signs - for example, claims made soon after a policy is taken out, or people who claim to have no receipt for an item bought recently. We also have experts who inspect buildings and cars to assess damage - we can tell when damage to a car is metal fatigue, for example, rather than the result of an accident.”

All insurance companies also have access to a database called the Claims Underwriting Exchange, which records the status of claims made by policyholders and helps to identify multiple claimants.

In an example of how widespread the problem has become, a survey by Moneysupermarket.com, the comparison website, found that two thirds of people would consider lying to their insurer if they had failed to secure their car properly and it was stolen.

Richard Mason, director of insurance at Moneysupermarket.com, says: “You may think that telling a little white lie, or holding back the whole truth, is no cause for concern. But if your claim is as a result of your own wrongdoing, insurers will see it as fraudulent. The consequences of being found out can be dire. Not only could the insurer refuse cover, it could report you to the police.

“Data-sharing means that other insurers will know that you have made a fraudulent claim, making it very difficult - or impossible - to find cover elsewhere.”

Credit cards and personal loans

If you are tempted to tell a white lie on a credit application - for example, giving your parent's address rather than your own - remember that all lenders have access to your credit file, which will be used to verify the application.

Neil Munroe, of Equifax, one of the three credit reference agencies, says: “Lenders almost always cross-reference applications. We have information on all current and former borrowing, including mortgages, credit cards, phone contracts, store cards, and personal loans. We can see exactly how much someone owes and when he or she made late payments. We also have individuals' dates of birth, name changes and address details taken from the electoral register.”

Lenders are also wising up to the importance of data sharing. The Cifas membership, which includes 270 lenders and insurers, share information when they receive a fraudulent application, entering details of the fraudster on a shared database.”

Mortgage borrowers beware

A report by Citizens Advice found that some people have even been encouraged to lie on their mortgage applications.

Last December the charity surveyed sub-prime lenders and brokers, who lend to borrowers considered as “high risk” because of a bad credit history. David Harker, of Citizens Advice, says: “We found that some brokers encouraged borrowers under the greatest financial pressure to exaggerate their income, or submitted false information without the borrower's knowledge. Furthermore, many lenders and brokers failed to carry out basic checks to ensure that borrowers would be able to meet the increased payments when discounted or fixed rates ended - some had not even checked that payments could be afforded from the outset.”

While most sub-prime lending has now dried up after the credit crunch, many people who were encouraged by brokers to take out unsuitable loans will be paying the price.

Mr Harker says: “As tempting as it might be to fulfil the dream of home ownership, never exaggerate income when applying for a loan of any sort - especially your mortgage. If you cannot afford repayments, you could end up in arrears and, ultimately, face repossession.”

You couldn't make it up...

Insurers can have a tough job distinguishing between lies and genuinely bizarre claims. Here we list some of our favourite car and travel insurance claims - and yes, these are genuine.

One driver, who had nodded off in his camper van in Northumberland, woke up to find that he had parked on the causeway and the tide had come in. Although he was safely rescued by boat, the van sank without trace.

Another driver claimed: “Several airborne shopping trolleys came flying towards me, ruining my bonnet.” The offending trolleys had fallen off a delivery lorry.

A fairytale wedding on a West Indian beach went up in smoke after the bride's dress caught fire from a brick of coal that fell from a barbecue, forcing the groom to toss his wife into the ocean. The couple successfully claimed for the ruined outfits on their wedding insurance.

As one driver sat in a car wash, the brush came loose so he opened his door to press the emergency button. Unfortunately, the machine jammed in the open door, writing off both car and car wash.

A man on holiday in Greece became so transfixed by two bikini-clad girls that he walked into a glass-panelled bus shelter and broke his nose. He managed to claim his hospital bills on his travel insurance.

And finally, to show that not all claims can possibly be genuine, AA Insurance says that more Rolex Oyster watches, worth upwards of £1,000, have been recorded as lost in the Costa del Sol, Spain, than have ever been manufactured.

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