Serious mis-selling in Britain ‘s sub-prime mortgage market has been claimed in a BBC investigation.
Industry insiders claimed people were advised to lie about their income to take out loans for more than they could afford.
Sub-prime mortgages are those sold to people with a poor credit history who are therefore more likely to default.
Half of all sub-prime mortgages in the UK are self-certification mortgages, where borrowers state their income and lenders don’t necessarily check.
Brokers banned by FSA
In a written statement to the BBC, the Financial Services Authority (FSA) said that based on its own investigations and on information received from lenders and whistleblowers it had banned a number of brokers who had been involved in knowingly overstating the income of mortgage applicants.
Which? Money expert Teresa Fritz commented: ‘This is yet another flagrant disregard of the rules by mortgage advisers and shows that three years of regulation have got us nowhere.
‘The FSA must re-think its strategy and start to name and shame the worst offenders as we have so often asked it to do.’
A former broker in the industry told Radio 4’s File on 4 that some advisers in the sector tell clients with a low income to inflate their earnings on application forms to get outsize loans, which they often cannot afford.
Inflating the client’s income is seen as an easy way for brokers to get the deal passed.
One borrower whose real income was £25,000 told the BBC he was advised to double that on his mortgage application. He got a loan of more than eight times his salary, and his monthly re-payments take up most of the family’s income. He has been threatened with re-possession.
It is impossible to tell how many other cases there are because few borrowers or mortgage brokers will admit to the practice, but campaigners fear it is widespread.
It’s predicted that sub-prime mortgages will grow faster than mainstream mortgages over the next four years.