Resist the urge to exaggerate your earnings when lenders don't check up

Self-certification mortgages, where lenders do not ask for evidence of how much borrowers earn, have been given a clean bill of health by City regulator the Financial Services Authority (FSA). Despite allegations that consumers have been encouraged by unscrupulous mortgage consultants to inflate their income several times to get a bigger loan, the FSA feels there is no cause for concern.

Publishing the findings of its review of the self-certification market last week, it concluded that the number of people who encounter difficulties making repayments is "currently not significantly higher than those with standard mortgages". That self-certification mortgages account for just 6 per cent of all home loans may partly explain this.

"Lenders' controls appear to be adequate in this area," says Philip Robinson, the FSA's spokesman on financial crime issues. "We would remind consumers that it is a criminal act to lie on their application forms. They know how much they earn and should state that clearly."

The Council of Mortgage Lenders welcomed the findings and also threw the ball back into the customer's court, saying they "have a responsibility to report their income honestly when making a mortgage application. Making a false statement would be fraudulent."

Some brokers, such as David Hollingworth at London & Country, warn customers to be on their guard - but only because self-certification may not be in their best interests. "The trouble is that higher rates of interest are charged on these loans, and sometimes there is a bit of laziness on the part of a lender or broker who recommends one simply because the customer is self-employed. With lenders getting better at dealing with different circumstances - being more flexible on the number of years of accounts a self-employed person has to produce, for example - self-certification may not be necessary."

However, for the self-employed worker who has sufficient income but can't prove it using payslips or three years' worth of accounts, it may be the only option. "There is a genuine need for self-certification lending, especially where borrowers have complex or multiple income streams, " says Simon Jones, director of mortgage broker Savills Private Finance.

If you are taking on a self-certification deal, the temptation to over-commit your finances for the sake of a bigger mortgage can be strong. But if you do exaggerate your earnings, not only is this fraudulent but you may come unstuck should interest rates rise.

If you are encouraged by your adviser to lie, contact the FSA's whistleblowing hotline on 020 7066 9200.