Ban on 'liars' loans' could cause house price fall.

THERE are fears the plan to ban self-certification mortgages could reduce demand in the housing market and cause prices to fall during 2010.

Designed for workers unable to prove their regular income, such as the self-employed, contract workers and people with various sources of revenue, these deals have been dubbed "liars' loans" because rules were often bent by those applying and by lenders.

Self-employed workers usually need two or three years of audited accounts, showing sufficient profit levels, to get a mainstream mortgage.

However, the mortgage market review from the Financial Services Authority is likely to end self-certified mortgages by bringing in more detailed procedures to verify income.

In mid-2007, around 45% of mortgage applications were "non-income verified" and about 23% of the total 3,800 mortgage products were available as self-certified loans.

Now the choice of mortgages is barely 1,450 - with only two providers of self-certified loans left: the Platform division of Britannia BS and Standard Life Bank, with loan-to-value limits of 50-75%.

"Cautious mortgage lenders could get an excuse to become even more cautious, and to shut stable doors long after the horse has bolted," warns Stephen Foden, chief executive of PropertyDatingAgency.com.

Over the past 18 months, up to 550,000 owners have struggled to sell for six months or more, says Foden, while 370,000 have been trying to sell for more than a year.

Sellers on PropertyDatingAgency.com pay a registration fee of pounds 10 to contact a set number of buyers, and should avoid any need to pay agents' fees.

At the National Association of Estate Agents, chief executive Peter Bolton King says the right balance must be found with any new guidelines, especially with the imminent end of the Stamp Duty holiday and the return to previous VAT rates.

"If they take us to the opposite end of the spectrum, they could do untold damage to the housing market, which is currently showing promising signs of recovery," he says.

However, the FSA plan has the backing of Stuart Law, chief executive of property investment adviser Assetz.

"This type of mortgage regulation is likely to reduce the level of speculation in the UK property investment market and increase the relative proportion of true property investors taking part, which can only bring greater levels of stability," he says.

At Housing Expert, Henry Pryor says the plans could trigger a "market collapse".

"New borrowers typically need 25% deposits, and additional restrictions will reduce the present trickle of buyers able to complete a purchase," he says.

"The self-employed already have to jump through many more hoops than the employed to get a loan. It might be critical if we take a group of buyers out of contention when the market is so precariously balanced. There is real risk that anything which reduces the credit supply will exert a downward pressure on prices.

"Removing buyers who can actually participate in the market at present would obviously reduce demand. Having given the banks a heap of taxpayers' cash with instructions to get lending again, the Government now appears to want to restrict them from actually doing so."