Self Certification mortgages are due to be banned by the FSA, we question whether this will be good for cleaning up the housing market or just a way to discriminate against the people use self-cert mortgages the most: the self employed.
Last week, the chairman of the Financial Services Authority, announced that they would be pressing ahead with proposed plans to ban self-certification mortgages.
Consumer protection was cited as one of the reasons for taking this decision which could effectively mean banks having to conduct “affordability tests” for every new mortgage in the future.
Lesley Titcomb, Chief Operating Officer at the FSA said
“There is a clear link between financial overstretch and mortgage arrears and repossessions, and we are determined to protect vulnerable consumers by making sure that everyone who takes on a mortgage can afford it.”
That is a very reasonable point of view and one with which it is hard to disagree. However, this ban will effectively freeze out a significant section of society: the self employed.
Latest figures show that self certification mortgages accounted for 43% of all mortgages in the first quarter of this year, so the impact of such a ban is likely to be very considerable indeed.
One comment on this news from the BBC website sees the need for something to replace self-certification for the self-employed:
“…ending of self-certification will impact mostly upon the 13% of the workforce who are self-employed…..published accounts cannot give an accurate, current picture of disposable income. They also tend to take full advantage of tax avoidance accounting in order to minimise tax liabilities, which leaves them disadvantaged in the mortgage stakes. …..self-certification was a significant contributor to the sub-prime lending crisis……the FSA should look at new ways to assess the credit worthiness of the self-employed, possibly by reviewing bank statements over a 12 month period.”
This is certainly an interesting debate, with people already struggling to get mortgages and finding themselves stuck renting, this new ban will make it even more difficult for people to become homeowners.
How does this affect you?