Faes made his warning at AltFi 2014, an event focused on the alternative finance market, held in London earlier today.
He said: “Fraud is probably the biggest risk. Mortgage fraud in the UK is a major problem. It’s the biggest area of risk in any sector – it’s higher than consumer lending.
“The most concerning fraud is solicitor fraud. It is surprisingly common and easy to pull off for fraudsters.
“The fraudsters can be tenants in a property that seek to assume the true owner’s identity – they get bank statements, ID’s etc and then they seek to sell the property.
“We recently heard from our insurers when this happened. They only discovered it when the true owner was driving past the property and saw the kitchen sink being thrown into a skip outside.
“A third party purchased the property from a fraudster and was part way through renovating.”
But Faes said such cases should not put peer to peer lenders off the mortgage industry.
He said: “The peer-to-peer mortgage industry is a huge opportunity but there are certain risks involved.
“We welcome other people getting involved in this space but we hope it does not end up tarnishing the industry in future.”