Sub-prime mortgage lies exposed

Borrowers with poor credit histories are being encouraged to lie about their incomes to secure a mortgage.

An investigation by the BBC reveals how some sub-prime borrowers are being advised to say they earn more than they do on self-certification mortgages to improve their chances of being approved for a loan.

Currently around half of sub-prime mortgages are self-cert - usually the reserve of the self-employed who have difficulties proving their income.

Exact figures of how many self-cert mortgage applicants are exaggerating their incomes are hard to come by as few brokers or borrowers are willing to admit to the practice.

However, BBC Radio 4's File On 4 programme uncovered instances of borrowers obtaining mortgage eight times their income after being advised to lie about their incomes.

This summer, a study into the sub-prime market by the Financial Services Authority (FSA) examining 485 customer files at 11 lenders found "weaknesses in responsible lending practices and in firms' assessments of a consumer's ability to afford a mortgage".

With mortgager brokers and intermediaries, a third of files had inadequate assessment of consumers' ability to afford a mortgage.

Many sub-prime lenders were found to be failing to check the plausibility of self-cert information provided by customers.

"Consumers in the sub-prime market are vulnerable people who may have high debts or a bad credit history. It is therefore important that they are properly assessed and advised. We will not hesitate to take action where we find bad practice," Clive Briault, FSA managing director of retail markets said after the study.

He also warned mortgage applicants of the dangers of lying about incomes

"Consumers should make sure they understand the risks, costs and charges when taking out a sub-prime mortgage," he said.

"They should also not be tempted to inflate their salary, which is a criminal offence."