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A BANK has scrapped 'risky' mortgages which desperate house-buyers are using to secure huge loans by lying about their earnings.
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The move by the Co-op follows allegations of widespread fraud across the home loans industry.
The bank said that while it had no evidence that its clients were 'trying to pull the wool over its eyes,' it was concerned about family debt levels and the ability of people to pay massive mortgages.
House-buyers struggling to get on the property ladder have turned to so-called self-certification mortgages in droves because they can borrow the money needed to meet soaring property prices.
There are few, if any, checks, which means people can simply fabricate their earnings in order to generate the cash they need.
It is claimed that many buyers who resort to being untruthful about their salaries are prompted by mortgage brokers who claim lenders have turned a blind eye to the scam.
Brokers get substantial commissions on the deals, while banks and building societies earn higher profits on the loans as interest rates are generally higher.
But there are mounting concerns that customers are taking on debts they cannot hope to repay, particularly when interest rates have risen and are expected to climb even higher.
The Co-op's decision to axe self-certification loans was taken by head of mortgages Paul Rumbold. A spokesman said yesterday: 'We think this is a responsible approach. We have become concerned with a number of issues surrounding these mortgages.
'There is general unease with this type of lending. The concern is that with increasing house prices, some people are taking on quite a bit more than they can cope with.
'We don't have a massive exposure in this area, but the feeling is that we want to take action now.
'There is a concern in the marketplace about customer indebtedness. That is not something we want to be seen to be associated with.
'There is an issue about people fabricating what they earn in order to qualify for a higher loan, therefore putting themselves in a position where they will not be able to meet extra debts if interest rates rise.'
Other banks and building societies may follow the Co-op's lead - a decision which could help curtail the current house price boom by removing a source of finance for buyers.
Last week, the biggest mortgage lender, the Halifax, said property prices are rising at their fastest rate for two years, with annual increases of 17%.
At the same time, the bank indicated that it is to take a stricter line on lending by turning away more risky customers.
The Financial Services Authority recently estimated that self-certification mortgages, available to both people in full-time jobs and the selfemployed, made up 6% of the market.
Industry brokers suggest it could be as high as 30%.
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