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Protecting your clients against self-cert risks – Marketwatch

  • 26/11/2015
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Protecting your clients against self-cert risks – Marketwatch
The news that a loan company is going to set up in Eastern Europe and offer online-only mortgages on a true self cert basis to self-employed borrowers created industry uproar.

The man behind the proposition, Graeme Wingate, runs an unsecured loan company in the UK called Quick Loans. He plans to launch the non advised direct-to-consumer proposition in January using the website domain Borrowers taking out mortgages with Wingate’s firm will not have to provide any evidence of income verification.

This week, we’ve asked our panel of intermediary experts how they plan to handle enquiries from borrowers about self-cert mortgages and whether they fear they will lose clients tempted by the prospect of a mortgage without income checks.

John Phillips, national operations director of Just Mortgages, says the best way to protect customers from these loans is by educating them about the risks involved by taking out an loan not regulated by the FCA..

Dean Mason, practice principal at Masons Financial Planning, thinks the regulator will manage to close the loop hole which Wingate is exploiting and stresses the importance of arming borrowers with all the details so they can make an informed choice.

Colin Payne, associate director of Chapelgate Private Finance, says borrowers attracted to this type of proposition are the ones who need advice the most.


John PhillipsJohn Phillips is national operations director of Just Mortgages

Key factors for UK mortgage advice are knowing your customer, treating customers fairly and providing them with the best mortgage for their individual circumstances. Offering an unsuitable product from a foreign country would break every one of these conditions and is highly likely to put the client at risk.

Even if this new lender does manage to bypass EU and UK rules and offer these products directly to consumers, most brokers would avoid them like the plague. As an approved organisation we would certainly not sell self-cert mortgages again, especially under these circumstances, and any broker that did would likely to be breaching MMR rules and face the wrath of the FCA.

There is always the possibility that a client could go direct to the lender, but the biggest way to avoid this is through education and brokers continuing to inform their clients. Brokers should continue to advise clients as normal, offering the full advice that they would always have done and advising against products such as these which will put their clients at risk.

As a result, I think the effect of this firm will be negligible and I very much doubt that we will see a flood of lenders setting up in unnamed European counties.
Dean Mason

Dean Mason is practice principal at Masons Financial Planning

I think most of us have put a lot of time and effort into bringing our industry into line following the crash and we’ve been through considerable pain metaphorically to get there. I suspect that with business levels high for decent brokers the temptation will still hopefully be to walk away from this type of enquiry and I don’t think it would bother most of us that much, any client naive enough to finance their home with an offshore online organisation without advice in this day and age must take responsibility for the consequences.

With the publicity around this and MCD around the corner one would suggest the FCA in conjunction with the EU authorities will find a way of nipping this in the bud and stopping others popping up and the networks will also put tight controls in place should any adviser consider ‘referring’ to this company or others. I would always warn clients against this route in the strongest terms but mortgages are only available to adults so ultimately the most important point is that if it all goes wrong, they’ve made their own informed choice. The type of prospect that might be attracted to this could well be someone who doesn’t have great history or attractive bank statements so it will be interesting to see this lender’s take on this.

Colin PayneColin Payne is associate director of Chapelgate Private Finance

The only point I can agree with Graeme Wingate on in relation to self-cert is that they have performed remarkably well over the years and default rates are only likely to be marginally higher than mainstream mortgages.

Self-cert mortgages are banned under the MMR and any thoughts on circumnavigating these rules in my view is morally wrong, which is why I don’t believe you’ll have any other firms trying to take advantage of this. The type of borrower that would now require a self-cert mortgage is just the type that would require advice and also the protection offered by the FCA and Financial Ombudsman Service.

Significant strides have been made by a number of lenders over the last few years to understand the self-employed market, Precise Mortgages is a leading example of this where they will consider adding in pension contributions, car allowances and use of the home as an office when looking at affordability, this is a lender who truly understands the market.

I don’t believe brokers have any worries whatsoever about this new online proposition and are not under any risk of losing clients. I believe transparency is key and presented with the facts I have outlined above it will allow clients to make a sensible decision to rule out the idea. Yes, some people may be tempted but I expect the numbers to be negligible. It is for brokers to fully understand the options open to them from specialist lenders and to educate their clients accordingly.

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