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The Changing Face Of Self-certification Mortgages

May 1, 2008
Several years ago self-certification mortgages were investigated by the Financial Services Authority. The FSA looked into the practises of mortgage brokers in the financial services industry as it was alleged that unscrupulous brokers were encouraging people to exaggerate their incomes on self-cert applications.

The investigation by the Financial Services Authority followed a report by the BBC's Money Programme which aired on television across the UK. The programme aired in 2003 and several mortgage advisors were suspended by the FSA because of the BBC's findings. Since then self-certification mortgages have been closely monitored by the authorities, the press, and other financial services industry analysts.

Despite the fact that the name "self-certification mortgages" was slightly tarnished by the investigation and subsequent actions, this particular mortgage product has remained popular with UK home owners over the past few years. This type of home loan is regularly used by self-employed workers to fund the purchase of their homes as traditional products exclude them from the mortgage market.

The reputation of self-cert mortgages has remained strong regardless of the media's attempt to stain it. The Financial Services Authority has carried out several investigations into the mortgage industry since 2003 and has concluded that on the whole there are adequate controls in place to ensure that self-certification mortgages are not abused en masse by mortgage intermediaries. The FSA alleges that self-certification mortgages are prone to no more abuse than other products through activities such as exaggerating income levels.

Although the investigations have uncovered several brokers who abused the system and regularly advised their clients to lie about their incomes on their self-cert mortgage applications, brokers within the financial services industry were found, by and large, to respect the rules regarding this type of home loan.

While the positive reputation of self-certs has been maintained in relation to intermediaries and their clients, these mortgages have come under the spotlight again due to the credit crunch. Industry analysts, particularly in the media, have begun to question the validity of any mortgage product that is considered to be non-standard. This includes mortgages designed for people with bad credit as well as those that do not require proof of earnings, such as self-certs.

Some analysts are blaming non-standard mortgage products for the overheating of the financial markets and the credit crunch which has followed. They claim that too much money has been loaned to people who cannot afford to pay it back and allowing people to obtain a home loan without proving their income is one of the main contributing factors.

So once again self-certification mortgages are in the media spotlight. While there may be some validity to the argument that large sums of money have been loaned to people who cannot afford it, it should be remembered that self-cert products are designed for self-employed individuals who do have regular incomes by do not receive pay slips and cannot prove their earnings in a traditional way. There will always be a legitimate target market for self-certification mortgages and, if they are to hold some of the blame for the credit crunch, the rules applying to this type of home loan may need altering. The product should not be forced disappear completely.
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