Fewer Brits lying about mortgages

Fewer Britons are being encouraged to lie about their income to secure a larger mortgage, a government watchdog has said.

The Financial Services Authority (FSA) reveals today that lenders are strengthening their systems and controls on self-certified mortgages to prevent people getting into unsustainable debt.

"We welcome the improvements made by lenders in the area of self-certification. But in the light of competitive pressures, tighter margins and rising arrears levels, we expect lenders to remain vigilant and to ensure that their systems and controls are regularly reviewed," said Clive Briault, FSA managing director of retail markets.

Self-certified mortgages are designed to cater for people who are self-employed or unable to prove their income. To allow this group to take out a home loan, self-certified mortgages allow borrowers to simply sign off on their earnings, rather than supply salary details - which would be impossible for the self-employed.

But there have been concerns that lenders and brokers have been telling mortgage applicants to inflate their earnings to secure bigger loans, possibly beyond the means of the borrower to repay.

However, the FSA's latest study has shown this to not be the case.

"The FSA has recognised the lending industry's commitment to ensuring that self-certified mortgages are sold in a responsible way to those for whom they are appropriate. This is good news, as self-certification is a big help to many people who do not fit traditional lending criteria," said Michael Coogan, director general of the Council of Mortgage Lenders.

But while lenders were put in the clear, there was some evidence of questionable practice among mortgage brokers.

Investigations into 41 mortgage intermediaries revealed three firms were prepared to discuss how clients could inflate their salary. The FSA has followed this up with the firms concerned.

The FSA's Mr Briault noted: "The findings on sales and advice from brokers show significant weaknesses which are disappointing. Further work needs to be done not only on affordability and suitability checks but also on the record keeping of the advice given.

"But it is encouraging that we have found no evidence to suggest that salary inflation is widespread or systematic within the broker industry.

"We will be working with the firms reviewed and today are publishing a summary highlighting examples of good and poor practice, designed to help intermediaries to understand and meet with our requirements."