David Prosser: Liars' loans have a place

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The Independent Online

Outlook The case against self-certificated mortgages – also known as "liars' loans" – looks a slam dunk. Once aimed at a small number of self-employed borrowers, these loans accounted for close to half of all lending at the height of the mortgage boom. Home buyers used them to borrow far more than they would have ever been able to get had they had to provide proof of income, and were often told to do so by dodgy mortgage advisers.

Now, the Financial Services Authority wants to ban them, along with 100 per cent mortgages where bad debts have been rising since the whole house of cards came crashing down. But lenders are urging the regulator to reconsider its position.

They have a point. Why should the small number of borrowers for whom these products are suitable miss out because others abused the system? If the ban goes ahead, there may well be self-employed home buyers and first-time buyers unable to get on the housing ladder even though they would be capable of servicing their debts.

Both liars' loans and 100 per cent mortgages were failures of regulation. The solution is not to ban these products outright but to ensure the sale of them is properly policed – as it should have been in the first place.