Calnea’s mortgage market outlook and commentary for Q2 2009 – which is based on data from the FSA’s recent arrears and repossessions report – revealed that non-evidenced cases made up 27.4% of gross advances in Q2 2009.

Although the proportion of these cases has declined from 42% in Q1 2008, the firm said lenders would accumulate further losses and their profitability would be threatened if the percentage did not decline further.

Troy Martin, director of Calnea Analytics, said the number of existing loans based on non-evidenced income needed scrutiny and monitoring.

He explained: “There is more risk attached to mortgages based on non-evidenced income. The
degree of self-certification approvals seems too high and inappropriate in the current market conditions and may lead to further problems.”

Linda Will, sales and marketing director at In The Loop Mortgages, said self-certification and fast track mortgages should only serve a very small part of the market.

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She added: “In the current downturn, lenders must realise that there is a very good chance that
customers will run into arrears if they inflate or overestimate their income on unchecked applications. They are not doing any favours to themselves or customers by granting loans to these people.”

Darren Cohen, mortgage consultant at LRG, said it was surprised that the percentage of unchecked cases was so high.

He added: “I understand that income may not be checked where applicants are moving to another deal with their existing lender, but the high percentage is a bit of a shock. If there is the slightest doubt, income should be inspected.”