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1 October 2007
A shocking new report has revealed that many self certifying consumers in the UK are managing to get lenders to offer huge loans simply by telling them that they earn far more than they actually do.
The reports claim that a number of financial advisers and brokers are advising consumers that fall into this category to lie about what they earn and to inflate their incomes on the application forms in order to get away with a far larger loan than they would otherwise be able to get.
This practice is already causing major problems, with consumers that have managed to get huge loans struggling to keep up with repayments and facing repossession.
One consumer explained that he had been talked into doubling his income on paper. As a self certifying applicant all he had to do was state how much he earned on the application and no checks were carried out. Therefore he doubled his own income on his application, claiming he earned fifty thousand pounds a year when in actual fact he only earned half of that.
As a result of this the lender offered him four times his salary by way of a mortgage, which is a pretty average income multiple for a mortgage lenders. However, the loan was based on the amount that he said he earned and not on his actual earnings. The loan actually equated to eight times his real salary, and he stated that he was now struggling to keep up with repayments on the loan and was being threatened with repossession.
This practice by some financial advisers and brokers was revealed following an investigation by the BBC. Campaigners are now calling on financial regulators to take actions to make sure that this practice is stopped, as it is further fuelling an already growing bad debt problem in the UK, and will contribute to growing repossession levels, which are already set to rise as a result of the number of fixed rate mortgage that are due to come to an end in the next few months.
With self certified mortgage loan applications checks on salary are often not carried out, which means that applicants can state their own income and the lender then takes it as red that this is the amount that the borrower is earning.
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