The Financial Services Authority is facing fierce objections from some of Britain’s biggest lenders over proposals to ban self-certified mortgages.
The City watchdog said that large banks and building societies had opposed a ban on the so-called liars’ loans that allow borrowers to state their own income without documentary proof, because it would be unfair on the self-employed and could lead to an increase in mortgage fraud.
The loans, which accounted for half of all lending at the peak of the housing boom in 2007, were blamed for playing a large part in the resulting collapse, after borrowers who had overstated or lied about their income on applications subsequently defaulted on repayments.
However, consumer groups, small lenders, brokers and trade associations supported the ban and argued that “everyone should be able to verify income, even if the income sources are diverse or the income streams irregular”.
The critical response will come as a blow to the FSA, which announced its intention to review the mortgage market last October. The regulator first looked at the loans in 2003, when they accounted for 20 per cent of the market, but ruled out a crackdown.