When the sub prime mortgage debacle first reared its ugly head, UK regulators and mortgage brokers were quick to claim that the same thing wouldn’t happen here.

The UK sub prime market is far smaller than in the US and UK mortgage brokers are regulated, unlike their US counterparts, they said.

But that doesn’t mean we don’t have a problem with sub prime mortgages, half of which are granted on a ‘self certification’ basis, whereby borrowers state their income and few, if any checks are made by the broker or lender.

The Financial Services Authority expressed concern over poor selling practices in the sub prime arena last year following mystery shopping exercises among mortgage brokers.

Now a BBC investigation has uncovered evidence of mortgage applicants (sometimes with the collusion of their mortgage brokers), inflating their incomes in order to obtain larger mortgages than they would otherwise have been able to access, or simply to get an application authorised.

There are tales of individuals getting eight times their salary or of doubling their real income on application forms, with the encouragement of the mortgage broker.

I can’t say I’m surprised. This area of the mortgage market has always been somewhat murky, given the huge incentives for brokers to sell sub prime mortgages rather than standard ones.

Mortgage brokers are typically paid 0.25-0.45 per cent for mainstream mortgages, 0.5 per cent for buy-to-let, 0.5 per cent for sub prime (light adverse), and a whacking 2 per cent for heavy adverse.

I remember when I first started writing about self certification mortgages how shocked I was at how few checks, if any, that mortgage brokers or the lenders did on their clients’ declared incomes.

Most of the brokers I spoke to took the view that it wasn’t in anyone’s interest for people to take on mortgages they couldn’t afford to repay.

But that attitude is pretty disingenuous given the incentives mentioned above for brokers to sell sub prime, rather than mainstream mortgages.

As for the lack of verification of applicants’ income, I fail to see why the self employed cannot be required to supply their last set of audited accounts, or at the very least a copy of their last tax return.

Time for the FSA to tighten up the rules PDQ, although it looks as though it will be yet another case of bolting the stable door after the horse has bolted.