Fears over mortgage 'timebomb'
A type of mortgage popular amongst self-employed workers has been branded a "ticking timebomb" by leading analysts.
Datamonitor researchers argue that self certification mortgages - which allow a borrower to certify their annual income without having to supply documental proof - are particularly prone to trouble in times of economic downturn.
The worry is that mortgage lenders have, during the house market boom, relaxed lending rules too far for self certification customers.
Datamonitor estimates that the self-certification market place was worth £9.8bn last year.
Since 1997, the self certification marketplace has grown by nearly 28% - outstripping the mortgage market as a whole - as the mortgage market has responded to changing work patterns.
In the past self certification was normally only open to the self employed.
However, today workers employed with more than one job, part-timers, temporary employees are all candidates for self certification.
In addition, first time buyers desperate to get a foot on the property ladder could be tempted to exaggerate their income to get the money to be able to afford a dream home.
Income stretch
The report concludes that such "income stretching" may not be a problem while interest rates and unemployment remain low,
But if the economy sours, self certification "could be a time bomb waiting to explode."
However, Steve Jones operations director of mortgage advisory firm Towry Law mortgages told BBC News Online that self certification doomsayers missed a vital point.
"Nowadays, lenders carry out credit checks very quickly and are able to approve loans without the documentation of old," Mr Jones said.
"What is more, typically self certification borrowers have a large deposit, say 25%, so lenders take the view that they have a sufficient buffer against negative equity," Mr Jones said.
