No-proof home loans 'invite disaster

One of Britain's biggest building societies yesterday said mortgage deals that allow people to sign up without having to prove their income were "an accident waiting to happen".

Yorkshire building society said the Financial Services Authority should bring in tougher rules for so-called self-certification mortgages when it starts policing home loans in October. Its comments follow warnings from other commentators that some home buyers are being encouraged to lie about their incomes to get on the housing ladder.

The third-largest building society said its decision to keep self-certification lending to a minimum and avoid other risky loans completely in favour of "bog standard" residential mortgages had paid off.

Announcing its results for 2003, the society said its gross mortgage lending had risen to a record £2.8bn while the number of people behind with their mortgage payments had fallen to a new low.

Iain Cornish, chief executive, said it had tentatively tested the self-certification waters, lending about £6m worth of these loans last year, but added that it ended up checking the incomes of about half of the cases.

Self-certification home loans allow borrowers to estimate their income without having to supply documentation such as wage slips. They were aimed at self-employed workers but evidence has emerged that others have been encouraged to apply for them in order to increase their borrowing power.

In October, an investigation by the BBC's Money Programme alleged that first-time home buyers were being encouraged to lie about their incomes by mortgage brokers.

Industry experts have expressed concern that some people taking out large self-certification loans could be particularly vulnerable to a sharp rise in interest rates or a downturn in the economy.

Mr Cornish said he believed this type of loan could be "an accident waiting to happen in terms of borrowers and lenders becoming unstuck". He added: "If interest rates go up and people have borrowed several multiples of their income, it will not take that much before people are exposed to that."

· Shortages of properties for sale are easing because more people are putting their homes on the market, the Royal Institution of Chartered Surveyors said in its latest survey of the housing market, which covers the three-month period to January 31.