Are second charge borrowers inflating their incomes?

Last post: Feb 9, 2018

The Financial Conduct Authority is investigating some second charge lenders who may have offered secured loans to borrowers on the basis of falsely inflated incomes.

 It's not easy to arrange a mortgage – especially if you're self-employed. Once upon a time, would-be self-employed house-buyers were able to self report their income, as long as this was then signed off by a certificate from an accountant. However, the industry soon saw that this was not a dependable method of certifying income. The practice was tossed out and more reliable, hard-line proofs of income are now required.

Not so in the second charge mortgage industry. Today self-employed borrowers seeking a secured loan do not require more concrete proofs and can still make use of self-reporting and an accountant's certificate to confirm what they earn.

Unfortunately, just as the system was abused for original mortgages, a minority of second charge customers are believed to have been abusing this laxness to artificially inflate how much they earn in order to receive a larger or more affordable secured loan.

The FCA (Financial Conduct Authority) are currently investigating several lenders who may have been privy to this problem.

The problem doesn't lie solely at the feet of borrowers who may be inflating their incomes. The lenders currently under investigation may not have been reinforcing the strong affordability controls required to ensure they are lending responsibly.

This is especially important when it involves a financial product which is often used by borrowers in a somewhat sticky financial position, often with a number of debts to consolidate. Without responsible lending, these borrowers could find themselves working with a product which is inappropriate for them, worsening their financial position over the longer term.

Looking for a responsible lender to arrange a secured loan? Contact our team to find a solution that fits your financial position today.