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Regulator to ban self-cert mortgages

Tuesday 13th October 2009

Self-certification mortgages, the loans used by self-employed mortgage holders are set to be killed off by regulator the FSA, which will compel all lenders to demand evidence of proof of income.

The initiative will be part of the FSA’s keenly awaited mortgage review, set to be published which early next week, according to an exclusive in The Times.

The sweeping report is also targeting buy-to-let mortgages, which could be regulated for the first time, said the paper.

Self-certification mortgages, also dubbed liar loans, accounted for one third of new loans in 2007, or about GBP 100 billion of the GBP300 billion loans granted that year. Buy-to-let accounted for 12 per cent of all properties, or more than three million homes in the same year.

But new loans in both sectors plunged to almost zero in the past year as lenders have deserted the riskier parts of the housing market.

Self-cert loans have been one of the fastest-growing parts of the mortgage market in recent years. They were mainly targeted at the self-employed or those with mulitple income streams who find it tough to prove their irregular income streams.

Unlike standard mortgages, for which customers must provide pay slips and other documents proving salary and expenditure, self-cert loans require far fewer documents and rely more on customers’ declarations that they can meet their repayments.

However, in the donwturn defaults on self-cert mortgages have been at much higher rates than the industry average.

HBOS and Bradford & Bingley were among the biggest self-cert lenders. HBOS was sold to Lloyds TSB in a rescue deal in September last year and B&B collapsed and had to be partially nationalised.

The FSA is also considering regulating buy-to-let loans for the first time. That could require professional landlords, who may have portfolios of 500 properties, to fill in the same forms that individual homeowners have to complete. Such a move would be inappropriate, experts assert, and could further stifle buy-to-let lending, which has also nose-dived in the past 12 months.

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Posted By Elias Edetanlen-Elliot on Thursday 10th December 2009 00:22:56

The FSA is certainly barking at the wrong tree. Banning self cert mortgages is denying those with mulitple income streams the opportunity of having brick and mortal investment and that would be unfair! Most of these people, such as mini cab drivers, cleaners, kebab guys, find it tough to prove their irregular income streams, yet most earn more than those with proven pay slip record that qualifies for loans. Gary Lewis argued that what is wrong with the system is product design and innovation by Lenders and I agree. FSA should direct their teeth at the right and proper quarters, not ban self cert mortgages. Thus, avoid creating further problem in an already problematic property market.

Posted By Gary Lewis on Wednesday 14th October 2009 12:39:09

May not be a regulator, but guess who'll be employed by the new jobs forthe boys and girls club, same old in a different, amended guise.

Posted By James on Wednesday 14th October 2009 09:43:40

Its simple. Blame the sleezy solicitors and compensation companies making a killing out of people avoiding their obligations. Self cert mortgages are perfectly good for self employed business people. What they are not good for is Jo public who can't afford the loan in the first place and then thinks that the world owes them a living and that everyone other than themselves should take responsibility for their problems. Keep self cert for the professional business person and there will never be a problem !

Posted By alec on Tuesday 13th October 2009 19:19:16

What's all the fuss about? The FSA won't be in existence after the next election. Will the Conservatives stifle enterprise? I think not.

Posted By Sweet FSA on Tuesday 13th October 2009 17:20:46

ANON - bagsy leftovers on that chip - there must be some as it's sooooo big.

Posted By David Hogarth on Tuesday 13th October 2009 16:22:31

Just as well I got my buy to let mortgage earlier this year, there should be no shortage of self employed tenants - thanks FSA. Another price crash? Wake up we are still in the price bubble and despite the Governments best attempts to keep the economy going till the election, their regulator seems hell bent on snuffing out any chance of the property market leading the recovery. So expect a further decline next year this is just a temporary blip caused by the Bank of England printing money.

Posted By aj on Tuesday 13th October 2009 15:45:12

Oh well, thanks for clarifying that for me ANON, and in block capitals too! Even if it is getting a bit off the thread.

Posted By ANON on Tuesday 13th October 2009 15:36:42

YOUR ARE RACISTS. DISGUSTING. FSA IS RACIST. DISGUSTING.

Posted By aj on Tuesday 13th October 2009 15:18:05

I totally agree with Barry & Sweet FSA, in fact my partner and I have a bet each time an FSA Fine etc is slapped on a broker, that the said broker has an unpronouncable name. Doesn't make me a rascist, or is it the sign of the times that people like ANON think I am?

Posted By Barry Ellis on Tuesday 13th October 2009 15:13:43

sorry ANON i have many varied ethnic friends ,i am only telling it as it is and i put my name to what i say

Posted By Gary Lewis on Tuesday 13th October 2009 15:12:59

The real issue here is product design and innovation. The lenders designed products and processes originally that were acceptable, and on the whole brokers and clients used their discretion and common sense prevailed. (ie Bank of Scotland's early flexible mortgages, and more recently The Mortgage Works self cert, both examples required no income to be stated, and each were underwritten more intensely. At this time eachlenders arrears records on these arrangements were very low, infact TMW lower than Nationwide status cases. However, as we all know, greed and abuse became the norm, making it hard to compete with integrity, and at a professional disadvantage if you did. Despite this, it was possible to advise with integrity, and get a suitable deal, but harder work, less profitable and more time consuming to do so. Regrettably, FSA banned BOS's no income option, and instead things got a little crazy as lenders became reckless losing sight of the big picture, just focusing on driving up market share, prefferring to introduce products and systems based on greed, hypocritically encouragaing/coaching advisers how to get a case through on this basis. The point is lenders design products, and the FSA should have dealt with the abuse and design years ago before it got out of hand. At the end of the day, lenders and the regulator totally failed to take responsibilty. Lying on legal documents is not acceptable, nor was coaching brokers and clients to do so, putting them in an almost impossible position, due to their lack of responsibility. The issue is simply this, can the client afford the repayments, does their financial standing and creditworthiness merit the level of funding, at a reasonable loan to value, and on reasonable terms. Why on earth is it so hard for lenders and the FSA, with their resources and requirements to come up with responsible lending strategies which do not compromise values and affordability, using innovation and creativity to solve this problem. After all, that is what they get paid to do isn't it? Just a thought to ponder over their free lunches! It all comes down to taking responsibility and having the character to make a positive difference, and be part of the solution, rather than the problem. Is it too much to ask that they actually try to get to the root and rebuild, all too easy to throw the baby out with the bathwater, tick a box, and pretend you've done a good job. At this stage, this far into the credit crunch, between them they should have some cracking new lending strategies that are workable and ethical. Is this asking too much?!? Or rather, is this not what they are in position and required to do? Or is there agenda here?

Posted By ANON on Tuesday 13th October 2009 14:41:19

Barry, You are a racist with comments like that. Just because the FSA is also racist we dont need people like you commenting on "Smith and Jones"

Posted By mr patel on Tuesday 13th October 2009 14:28:04

here comes the next house price crash!

Posted By Michael Thommes on Tuesday 13th October 2009 13:54:43

Many business people raise money secured by their houses to consolidate and expand their business, to alleviate cash flow difficulties and provide working capital. This in turn ensures business opportunities are maximised, cost of borrowing is at the minimum and employment is maintained and increased. The vast majority of the 30% of borrowers enjoying self cert facilities have been the creators of new wealth for this country over the last 10 years and have helped the UK become a land of hope and opportunity. Don't let the short sighted bureaucrats at the FSA, who probably have never speculated to accumulate anything in their lives take away the opportunity for everyone else!

Posted By Anon on Tuesday 13th October 2009 13:33:27

Sweet FSA, agree totally. Do the FSA have even the slightest idea how many people over the past 5 years have got loans on Self-Cert and 'Fast-track'? My guess....A LOT!

Posted By Sweet FSA on Tuesday 13th October 2009 13:32:28

Barry - totally agree - made the comment a few weeks ago that most of those banned were names I couldn't pronounce. I was labelled a racist by certain liberalites. Let's stop being afraid of being politically incorrect. I'm not a racist, just a decent hard-working middle-class broker making a learned observation.

Posted By Anon on Tuesday 13th October 2009 13:30:24

Going to be interesting over the next few years, when all these 1000's self-cert borrowers want to remortgage! What about the mainstream lenders, so called 'fast-track' products?

Posted By Sweet FSA on Tuesday 13th October 2009 13:25:56

If they ban 'fast-tracking' as well (unofficial self-cert) then we will have the biggest property crash of all time. Let's hope we don't all cut our noses off to spite our faces. Wheter you agree or not, Fast-tracking has enabled s/e clients to get mortgages where they know they can afford them, but where their Net Profit accounts do not come up to the mark. As we all know £50k pa employed is not the same as £50k pa s/e. Let's hope and pray.

Posted By Barry Ellis on Tuesday 13th October 2009 13:23:47

FSA banning this fsa banning that its about time the FSA started trying to protect good brokers and to try to kick start our industry all i hear is what they ban and fine ,most of the brokers they ban are to say the least not endowed with names like smith and jones ,but also they keep all the fines they impose is this right i wonder when the MCCB regulated the industry i wonder how many of the people involved earnt 6 figure sums start working to help us struggling brokers who sink deeper every day in Required documation

Posted By Mark Bracegirdle on Tuesday 13th October 2009 13:21:24

It is not self-certification that has been the issue, but the loan to values lenders went to. Banning, as this government is too fond of, will merely reduce choice and take a huge chunk of people out of the market altogether.

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