The FSA has sounded the death bell for self-certification mortgages. The regulator laid out proposals today that will change the face of the mortgage market.
It’s called the motions tabled as the most ‘intrusive and interventionist’ proposals to date. Targeting lenders, there’s little doubt the FSA is tightening their leash.The regulator is also demanding to oversee the regulation of the buy-to-let sector. That’s alongside all other home associated lending, such as taking out a second charge.
The FSA is also calling for tougher affordability tests for all potential borrowers. This will make lenders more responsible for assessing a borrower’s ability to pay.
It also intends to ban ‘self-cert’ mortgages through greater verification of borrowers’ income. This will be a huge blow to the millions of the UK’s self-employed, many of whom have such home finance in place.
The report hasn’t ruled out further change if the initial proposals have insufficient impact. This could include caps on loan-to-value, loan-to-income or debt-to-income.
Jon Pain, FSA managing director of supervision, said:
“The mortgage market has seen extraordinary upheaval over the last 18 months…
“…whilst it has worked well for the vast majority of borrowers, some have suffered great financial distress.
“We recognise that we need to bring about a step change in regulation and we need to act now to address the issues we have identified.
“The FSA needs to ensure that banks only lend to people who can afford to pay the money back.
“The reforms…will ensure the mortgage market works better for consumers and is sustainable for lenders.”
The FSA’s discussion paper is out for discussion until 30 January 2010. The financial regulator will be seeking views from consumer groups and industry.
They plan to issue a feedback statement in March confirming the motions’ phased implementation.
The CML’s statement is quick to point out the underlying irony beneath the document. On one hand, politicians are encouraging lenders to increase mortgage lending to consumers. On the other, those same politicians want to address the perception of “irresponsible lending”.
The Council concedes that there is logic behind the ‘well thought out’ paper. Yet it questions politicians wider use of lending issues. Rather than spark serious debate, the paper may well incite “rabble-rousing”. Using mortgages to light a political touch-paper can only lead to one thing. You can ask Guido Fawkes what that is.
I agree that the FSA had to bring the banks into check. Especially sub-prime lending, securitisation and the goings on of mortgage backed securities.
But it is also important to ensure that the FSA is objective and fair to lenders, mortgage brokers, and consumers.
I am concerned that we might be entering a new phase of over-regulation and policing, one extreme to the other.
There is a silver lining, at least for the time being. Some High Street lenders are still providing contractor mortgages based on gross annual earnings.
Self-cert mortgages may be on their way out, but that’s no bad thing. Repayment mortgages of up to 4.5 times your annualised contract rate remain a viable option.
With self-cert gone, it will force advisors to look at these other ways of securing mortgages for contractors. You could even get a more competitive interest rate once they see your gross annual contract income. Now that’s regulation we could all live with.
John Yerou is a pioneer of contractor mortgages and owner and founder of Freelancer Financials, Contractor Mortgages®, C&F Mortgages and Self Employed Mortgages, trading styles and brands of the award-winning Mortgage Quest Ltd.