Mortgage liars borrow well over limit

HOMEBUYERS are being encouraged to lie about their income to qualify for the mortgages they need, according to a study. Some unscrupulous lenders are said to be allowing buyers to borrow up to eight times their income.

The boom in so-called self-certification mortgages has raised fears over a 'ticking timebomb' in the property market.

The report by research analysts Datamonitor says: 'As house prices have soared, more people have been tempted to overstate their income as it may be one of the only ways for them to buy the property they want.

'Although income stretching is not necessarily a problem when interest rates and unemployment are low, the market could be a timebomb waiting to explode if conditions worsen.'

The practice is thought to be helping to fuel the housing market and drive up prices.

City watchdogs are under pressure to order a crackdown on the loans, which allow customers to effectively fabricate their income.

Several financial advisers linked to major lenders have been caught out suggesting customers should inflate or 'stretch' their salaries. The mortgages, which generally carry higher interest rates, have traditionally appealed to the self-employed. But they are available to anyone working full-time.

'Self-certs' account for £9.8b - five% - of all mortgage lending. But they have been growing at nearly 28% year for the past five years, faster than any other type of loan.

As many as one in five mortgages sold by Lloyds TSB and Abbey National, which are both in the top ten of lenders, are on self-certification. They are also thought to take up a similar share at the biggest lender, HBOS - the Halifax Bank of Scotland group.

There are concerns that the Financial Services Authority, which takes over the regulation of home loans next year, is not doing enough to police selfcertification mortgages.

The FSA was looking at a ban on selling them to salaried workers but this has been dropped.

The Mortgage Code Compliance Board, which currently oversees the industry, believes such a safeguard is vital to ensure buyers do not borrow more than they can afford. Chief executive Luke March said: 'The FSA should ensure lenders are not allowed to offer selfcertification loans to employees, apart from in exceptional circumstances.'

The FSA is believed to have written to the largest lenders to try to gauge the extent of selfcertification.

A spokesman said it was keeping a close eye on the issue, adding: 'Mortgage fraud is a criminal offence. We will take it up with the relevant criminal authorities if we find evidence of people inflating their salaries. Lenders have to lend responsibly.'