The comments follow the launch of controversial lender SelfCert.co.uk last week, which managed to bypass a ban on self-cert mortgages in the UK by basing itself in the Czech Republic.
Lea Karasavvas, managing director of Prolific Mortgage Finance, said while he ‘firmly believed’ there is a requirement for self-certification in the UK mortgage market, a non-regulated execution-only proposition was not the way to go.
“With no advice given, my concern here is where the client lies at the end of the introductory rate period. Do they instantly become a mortgage prisoner? Do they have an exit route? My worry would be that potential applicants would not consider these options and could pay a hefty price.”
He added: “For me, self cert has a place. High-net-worth clients who use varying tax schemes to save on tax would be a perfect example. Clients with varying revenue streams that are not all taken into consideration by lenders, are another. There is a market for it. However, an unregulated, execution only process is not the answer and for me, will create a plethora of issues further down the line.”
Roger Lucarotti, operations director at Linear Financial Solutions, agreed: “If they can work out some way of offering a product like this in the UK, there would be demand for it without a doubt.
“But self-cert mortgages have been banned over here for a reason. I’m not sure the Financial Conduct Authority is right to ban them outright but it certainly can’t exist in the form that it used to before the credit crunch.”
Just days after it launched, SelfCert.co.uk announced that it had suspended new lending for at least three months while it worked through a ‘severe backlog’ of applications.
Borrowers do not need to provide income verification for the loans which have a limit of £500,000 and maximum loan-to-value (LTV) of 85%. The lender currently has up to £50m to lend available for 250-300 average-sized mortgages.
Managing director of Freelancer Financials John Yerou said the lender’s funding availability was ‘peanuts’. “Most small to medium sized mortgage brokers do £50m lending a year. They’re supposed to be a lender, they’re not a lender, and they’re financiers with equity backing.”
He added that the lender was likely to attract ‘tax dodgers’ that can afford to take out a mortgage but do not disclose their income.
“The proposition has no place for contractors at all because they can get mortgages legitimately based on their contract rate. Effectively, the clients they are targeting are tax dodgers. The kind of businesses I’m talking about are those that very cash-orientated and don’t have any way of securing a mortgage because they’re not declaring their income,” he said.
However, Taj Kang, recruitment and training director at Contractor Mortgages Made Easy did not agree with the notion that SelfCert.co.uk was looking to target ‘tax dodgers’.
“Historic self cert attracted that sort of borrower, but I think I don’t think it’s sort of borrower they’re after. Cash is completely untraceable and there has to be some sort of footprint for the affordability. Even this lending option is looking for some type of evidence of affordability.”
He added: “There are more prudent ways for self-employed clients to access lending. There is definitely a gap, but the way in which that gap needs to be filled is by more lenders, particularly high street lenders, looking at the existing pigeon holes in which they like putting people.”
