Many borrowers' income unchecked

There is concern about self-certification mortgages

Lenders are not verifying borrowers' income for nearly a third of home loans, new figures indicate.

According to a survey among lenders the loans - including self-certification deals - were worth £42.5bn or 28.3% of the market in the last half of 2003.

The loans are a boon for the self-employed, but there is concern that some people may overstretch themselves.

But the Council of Mortgage Lenders (CML) said its survey also found all banks were conducting credit checks.

The loans are collectively known as Income Non-Verified (INV) mortgages, although they are divided into different categories.

Self-certificated loans, which allow borrowers to declare their own incomes rather than providing documentary evidence of them to the lender, accounted for 12% of all second-half lending.

TYPES OF LENDING Income self-certified loans - loans marketed by the lender as not requiring the borrower to provide proof of income Income non-certified lending- loans where the borrower is not required to declare an income when making an application Fast-track lending - mortgages stated by the lender as requiring proof of income but where, in practice, verification checks are not systematically made

Fast-track loans are another kind. They accounted for 16.3% of loans. A condition of this type is to provide proof of income but, in practice, lenders do not seek to verify it for some lower-risk loans.

Of the 30 lenders that submitted information, 24 said they offered self-certification loans, and 12 reported that they operated fast-track lending.

CML stressed that while lenders would not always verify income, all INV lenders carried out credit checks.

In addition, it said, most carried out additional verification checks.

For example, 91% ran fraud checks against systems such as Cifas and National Hunter, which pool information on fraud and detect inconsistencies in credit applications and spot checks on income data, were made in some cases.

On the spot

A BBC2 Money Programme investigation into self-certification mortgages last year sparked a debate about whether there were adequate checks being made on these types of loans.

You can look at lots of other information instead of just the verification of someone's income to assess their ability and likelihood to pay their mortgage CML spokesman

The Financial Services Authority (FSA) undertook a review of the industry following allegations made by the programme.

The programme alleged some house buyers were being encouraged to lie about their income in order to get mortgages.

The FSA concluded "lenders' controls are generally appropriate for this business" and it has written to chief executives of the major mortgage lenders with its findings.

It said self-certification loans accounted for 6% of overall mortgage balances.

A spokesman for the CML said: "Affordability and the continuing ability of borrowers to pay their mortgage is a key concern for lenders, because they don't want to see an unnecessary increase in possessions and arrears."

But he added that there were many other ways lenders could assess an applicant's ability to repay the loan.

"You can look at lots of other information instead of just the verification of someone's income to assess their ability and likelihood to pay their mortgage," he told BBC News Online.