City watchdog launches probe into 'self-certification' mortgages

Chief City watchdog the Financial Services Authority has launched a nationwide probe among mortgage lenders following allegations that people are lying about how much they earn to qualify for larger home loans.

The FSA started worrying about the abuse of 'self-certification mortgages' after a BBC Money Programme showed the system's loopholes.

Self-certification caters for people who cannot prove their income by conventional methods. They tend to be self-employed or people with irregular income.

Financial advisers claim that it is easy to falsify earn ings in such circumstances.

The FSA has written to Britain's largest mortgage lenders, including HBoS, in an attempt to gather information about the extent of self-certification and the efficiency of credit risk management.

An FSA spokesman said: 'We would consider enforcement action against firms or individuals.'

Borrowers falsifying documents would be guilty of financial fraud, but banks and building societies have a duty to take into account a customer's ability to repay a loan, and to keep records of what they have seen to support that assessment.