As Nick Cohen of The Observer warns: "pray this country doesn't go sub-prime", Tony Levine of The Guardian is hailing ‘liar loans' as: "an attractive option". Cohen cites ‘liar loans' or self-certification as one of the negative influences which brought the market crashing down and Levine appears to think they are the answer to many people's prayers.

‘Liar loan' is an industry term used to describe self-certification mortgages which applicants can get without having to supply proof of income. Instead of looking at proof of an applicant's income a company will instead consider their credit score when deciding whether or not to lend. Self-certification loans were nicknamed liar loans because applicants were often able to lie about their income and therefore get loaned more funds than they would easily be able to pay back.

When US sub-prime lenders were offering their near-destitute customers mortgages in order to hit sales figures liar loans were one of the many products on offer and Nick Cohen says that this was a contributing factor to the market's collapse.

Writing for The Observer Nick said: "Borrowers who never could pay off their debts took 'stated income loans', which plain-speaking brokers translated into 'liar loans' because debtors were free to lie about their income. As long as American house prices kept rising, the lending bubble didn't burst. Homeowners who ran into trouble could either sell and repay their debt or remortgage. Once prices fell, however, a bad-debt crisis drove borrowers to default and finance companies to the wall."

Tony Levine said that the cost to take out this type of loan "ratcheted up again this week." He said that it was harder find a good self-certification deal but that if you do premiums are often lower. An expert has said that the Financial Services Authority watches brokers and lenders far more carefully now so that the system is not abused as often, which is allowing banks to lower interest rates and make self-certification deals more attractive to customers. The loans are designed to appeal to the self-employed, those who get variable bonuses or those who earn a lot from investments.

Although the loans are not intended for those in regular full-time employment who are paid through payroll, in the US people who did not need to take out a self-certified loan were still doing so. Interest rates are incredibly attractive on these deals however, so how can people who needn't apply be prevented from doing so? According to Levine, "Bristol & West, part of the Bank of Ireland, will lend up to 85% LTV at 6.55% fixed until May 2013. Over three years, Leeds building society will lend at 6.24% with an 80% LTV, while Kensington offers a two-year tracker self-cert at 1.34% above base rate. "

It is assumed that those looking for a self-certification mortgage will be high-earners because they will get large cash bonuses, be business owners or be self-employed. With that in mind it is easy to see how sub-prime lending of liar loans would be a dangerous thing for the markets. Nick Cohen is worried that the problem of irresponsible lending, especially with regards to liar loans could hit the UK. But as the economic crunch continues it seems more likely that we will learn from the mistakes of the US in the past and move on. According to the FSA self-certification loans, in this country at least, should only get awarded to applicants who are suitable.

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