The Financial Services Authority (FSA) is proposing to ban self-certification mortgages, as they have been criticised for their role in the property boom, it has been reported.

The FSA, which is reviewing the mortgage market, is planning to introduce rules that make it mandatory for lenders to demand proof of income.

Accounting for only 5% of total annual lending, self-certification loans do not require borrowers of home loans to furnish proof of income and were very popular with self-employed persons.

Banning self-certification loans would also mean the end of fast-track loans which are granted on the basis of credit scoring of borrowers rather than on income verification.

The market has virtually dried up since the credit crunch struck, with Platform, part of Britannia, the only major lender still offering the product, after Nationwide's specialist mortgage arm The Mortgage Works pulled out of the market on Friday.

But fast-track mortgages accounted for a far greater market share, with around half of mainstream loans processed under the system.

The Council of Mortgage Lenders does not have records on arrears levels for self-certification or fast-track mortgages, but brokers claim fast-track loans have lower arrears levels as lenders tended to offer them to lower risk customers.

Self-certification mortgages had slightly higher default rates, but were priced to reflect this.

Ray Boulger, senior technical manager at John Charcol, said: "Banning self-certification mortgages will make virtually no difference at the moment. The market has virtually died, most lenders pulled out some time ago."

But he added that a ban could prove problematic for the estimated 500,000 borrowers who still have one of the loans, many of whom would not be able to qualify for a mainstream mortgage.

The ban on self-certification loans is thought to be one of the measures the FSA will propose introducing when it announces its Mortgage Market Review next week.

It is also thought to be considering introducing regulation for buy-to-let mortgages for the first time.

But the watchdog is understood to have cooled towards the idea of imposing caps on the loan-to-value ratios and income multiples that lenders could advance to homeowners after consulting the industry.

Copyright © Press Association 2009