In a discussion paper due today, the regulator is expected to propose a change of rules so that borrowers must provide proof of their income before being granted a mortgage.
The move would effectively outlaw self-cert mortgages at a time when the number of products
in that space is already at an all-time low.
Last week the Council of Mortgage Lenders (CML) responded to the expected clampdown by warning that borrowers who legitimately used the product would be excluded from the mortgage market, effectively trapping them in their current mortgage.
The CML made the comments as part of its submission to the regulator ahead of the publication of its Mortgage Market Review.
Michael Coogan, director-general of the CML, said: “The current problems stem not from a failure of the mortgage rulebook, or from widespread credit problems in a recession, but essentially from past approaches to supervision of the rules and an oversupply of money
to lend out. Now the pendulum has swung and the problem is the lack of available mortgage finance. Regulatory intervention on mortgages is unlikely to reverse this trend and might accentuate the problem.”
Mark Harris, managing director of Savills Private Finance, agreed that self-cert mortgages had a “legitimate use” but admitted they had been missold in the past.
He said: “Personally I do not think it is the FSA’s mandate to tell banks what they should and should not do. If lenders are happy that the product matches their risk profile then they should be allowed to offer the product. No one is forcing them to lend in that sector.
“There is a danger of overreacting and banning things too quickly. It has been misused in the past and missold but we should get it right rather than removing it completely.”
Ray Boulger, senior technical manager at John Charcol, said the FSA would be making a “big mistake” in banning the product. He said: “As I understand it the FSA will not outlaw self-cert directly but will put measures into place that will effectively rule them out. However, because self-cert deals have all but vanished anyway, the FSA has time to make a decision. It does not have to rush and can respond to the market once it reacts to its suggestions.”
David Hollingworth, head of communications at L&C, said the debate had raged for a while because people had been abusing self-cert mortgages for years. He said: “The product clearly has a use and has served self-employed people well in the past. At the moment it is a fairly
mute point because there are hardly any self-cert products left.”
