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Multiple pile-up

Recent media claims that borrowers are being encouraged to inflate their salaries to qualify for mortgages they can ill afford have further damaged public perception of financial advisers.

But assertions that fraudulent self-certification mortgages are to blame for the property boom do not hold much sway with IFAs.

An undercover investigation by BBC&#39s The Money Programme claimed that some brokers have been telling borrowers to exaggerate their incomes on mortgage applications, sometimes raising the amount which can be borrowed from £150,000 to £220,000.

The TV programme was followed by articles in the national press claiming that self-cert mortgages have caused the housing market to boom.

But IFAs say there are far more significant factors which are responsible for the strength of the market and point out that self-cert accounts for less than 5 per cent of the market and it is unlikely to have much of an influence on prices.

Lenders are also relying much less on traditional income calculations to assess whether borrowers can afford to repay their loans, even in self-cert cases.

Chase de Vere Mortgage Management managing director Simon Tyler says lenders now have access to a lot more information about borrowers, such as more advanced credit checks, which makes it easier to see if someone can afford a mortgage.

He says: “I do not think the argument that it is self-cert mortgages which are fuelling the market holds a great deal of water. Many borrowers, who inflate their income slightly on an application for a self-cert mortgage, would have been lent that money anyway, even if they had been honest about their income.

“Low rates are allowing borrowers to afford higher property prices because they can meet the monthly payments.”

Charcol senior technical manager of mortgages Ray Boulger says: “Undoubtedly, the self-cert market has an effect up to a point because if some borrowers did not have access to self-cert mortgages, they could not afford to get homes, so there would be less of a demand for properties and therefore prices could drop.

“But only very few self-cert mortgages go up past three-and-a-half times income and they usually require a deposit of 20 per cent of more, giving the lender a buffer zone. Because of this, many would have been lent the loan amount anyway, so self-cert mortgages themselves have not had a significant impact on the market.”

London and Country Investments senior mortgage adviser David Hollingworth says: “Self-cert mortgages – particularly those lent to borrowers who have hiked their income on the application – are a symptom of the property boom but not the cause of it.”

The simple answer to what has fuelled the boom is low interest rates, says Manchester-based PKF senior financial planning consultant Adrian Pattinson.

He says: “Rates are at historically low levels, despite the recent rise in the Bank of England base rate, and it is this which has made mortgage payments more affordable. The rates have allowed borrowers to buy higher-priced property which in turn fuels the market. Rates have had a far bigger impact than self-cert mortgages.”

Boulger says: “There is no doubt that the one thing that has fuelled the property market in recent years is low interest rates.”

Boulger points out that, until 1992, rates were in double figures. Looking at recent history, he says each time that rates have been cut, the market has boomed.

It is all part of the property market cycle, according to Tyler. He says: “Every time interest rates come down, property prices are protected or they rise. If rates go up, prices plummet. People panic if rates rise. They are very interest-rate-sensitive.”

Hollingworth says: “People are still confident enough in the market to take out large loans. I expect the impact of the recent rise in rates to be minimal.

“However, if rates do increase in quick succession in the near future, it is likely to have a dampening effect on the market. A significant rise in rates would have a far greater impact on the property boom than changes in self-cert mortgages.”

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