Financial Services Authority Mortgage Review
FSA Proposals will Ban Self-certification Mortgages in UK
Oct 24, 2009
The FSA chairman Lord Turner blamed the rapid growth of mortgage lending for triggering the present financial crisis. He outlined the key features of the new review, which will, particularly affect self-employed mortgages and self-certification mortgages.
Some of the main points are:
- An introduction of affordability tests for all mortgages applicants, forcing lenders to take responsibility for calculating a person’s ability to pay.
- The banning of self-certification mortgages.
- The banning of mortgage arrears penalties when consumers are already repaying and making sure that lenders do not profit from people in arrears.
- The banning of financial products, which have “toxic combinations of characteristics that put borrowers at risk.” Toxic combinations may include lending to people with low credit scores or lending too high a proportion of the house value.
It is widely believed that the self-certification mortgage process, known in some quarters as “liar loans” has been abused as they allowed borrowers to inflate their salaries without providing proof of earnings.
The Guardian newspaper which said (13 October, 2009) that the banning of self-certification mortgages were a, “central plank” of the FSA proposals also made the point that, “ As there are hardly any lenders offering such deals… people (looking for self certification mortgages) are already frozen out of the market.”
Self-employed Mortgages
It is highly likely that lenders will now demand to see at least three years of business accounts before considering offering the self-employed a mortgage.
Those people who are more recently self-employed or do not have appropriate accounts may well find it impossible to get a mortgage. This proposed measure would also affect an employed person who cannot prove their income.
Guy Anker, writing in the respected moneysavinexpert.com website commented, “Everyone who wants a home loan will be assessed on their total disposable income after tax, bills food and drink and luxury items.”
Lenders Will Demand Proof of Income
In essence, if the proposals become binding, the banks and building societies will demand to see bank statements, wage slips and proof that the borrower has the means to pay the required deposit. It means that it is now more than ever incumbent on people to keep accurate financial records.
The FSA proposals have been welcomed in many quarters, Andrew Montlake from mortgage brokers Coreco said, “Sensible changes now could mean the future is built on more solid ground.”
In response to the FSA mortgage proposals, the Council of Mortgage Lenders (CML), whose members are building societies, banks and other lenders said, “ It is however ironic that at the same time as politicians are seeking to encourage lenders to increase their flow of mortgage lending to consumers, they are also keen to take steps to address the perception of ‘irresponsible lending’…”
Sources:
Council of Mortgage Lenders, CML welcomes FSA discussion paper on mortgage regulation, 19 October 2009-10-19
Guy Anker, News Editor. moneysavingexpert.com, FSA mortgage crackdown: How it affects you, 19 October 2009
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