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The end of self cert mortgages?

I wrote an article some time ago about the FSA’s proposed changes to end self certification and fast track mortgage lending in which I made a big point about how this could leave a lot of people struggling to refinance and cause trouble for the recovery of the housing market.

The FSA last week confirmed that action would be taken, and the press have been making similar observations to my own today about the impact that this could have on our recovery and those borrowers with an existing loan of this type.

But over the weekend I had a realisation and did a u turn on the subject. In reality there are few if any legitimate borrowers who cannot “prove” their income. The point being that “proof” and it’s interpretation is the key point here, because almost all people can show evidence that the income they declare is broadly accurate however they may not be able to prove income in the manner that a normal full status mortgage would require.

For example if you have a business from which you could take far more income than you currently do without running the business into decline that is your prerogative, and if you can show that you can still afford a large mortgage then fine, but you can also evidence that your business has the potential for you to take further income. It may not be satisfactory at your local building society now, but lenders with good product development teams will soon see how to create a new type of product to cater for this market once their appetite comes back.

So if the FSA get this legislation right and don’t dictate or define what proof consists of then there will still be the opportunity for lenders to market products for those with non standard income, priced above full status products as before but simply requiring some evidence to back up that the income declared isn’t total fabrication. This is what’s needed in the market and the FSA just need to be careful not to try and make this legislation so watertight that it chokes the housing market to death.

Who needs Self Certification?

There have been muted announcement’s from the FSA recently that indicate they may be moving to stop fast track lending and self certification mortgages for people in full time employment but there still seems to be a lack of understanding in what self cert is for.

Self Certification is designed for those who cannot prove their income and for whom normal lending practice of considering income that is not guaranteed at a rate of 50% would cause unfair difficulty in borrowing.
There are many types of employment that are paid largely in commission income ranging from recruitment consultants, estate agents, business development managers to stock brokers, (even mortgage advisors my friend!). These are all forms of employment that may produce a need for self certification.

Other people that are owners of a business that may produce very irregular income streams such as businesses in tourism sectors or a firm that was paid on completion of large irregular contracts may also have a need to self certify particularly when self employed.

What it is not is a means to inflate income. Lenders will withhold the right to contact employers, ask for bank statements and other supporting information so if the figures are out of the ordinary they should be asking questions and hopefully if the FSA keep this mind it won’t be banned. There is a home for Self Certification that shouldn’t be ignored.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT. YOU DO NOT HAVE TO PAY A FEE FOR OUR SERVICES AS WE RECEIVE COMMISSION FROM LENDERS. IF YOU PREFER YOU CAN PAY 1% FEE ON COMPLETION AND WE WILL PAY ANY COMMISSION WE RECEIVE TO YOU. SOME BUY TO LET AND COMMERCIAL LOANS ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY
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