FSA to ban self-certification mortgages

This week the Financial Services Authority (FSA) announced its plans to regulate the mortgage market. It set out proposals which it says 'reflect the FSA’s changed approach to a more intrusive and interventionist style of regulation'. So no more ‘fiddling while Rome burns’ then. In other words, having done nothing to control the behaviour of lenders over the last ten boom years and allowing the mortgage market to implode, the FSA now feels that the time is right to regulate.

The FSA has published a ‘mortgage market review discussion paper’. Jon Pain, the FSA’s managing director of supervision (a position that presumably has been a sinecure up to now), made some comments that should earn him a prime time comedy show.

“The FSA needs to ensure that firms only lend to people who can afford to pay the money back,” he said, adding that the FSA’s analysis of the market had revealed “a mutual assumption by too many borrowers and lenders that the good times could not end.” He failed to mention that this delusion was apparently shared by his own organisation which sat on its hands as this unsustainable market boomed.

One clear proposal is the banning of ‘self-cert’ mortgages. These were devised for self-employed people who often have accounts that do not reflect their real ability to pay. With these products, the borrower would declare their income and the lender would accept that without further investigation. The ever wily mortgage brokers immediately used these products with borrowers who were employed but had insufficient income to obtain the mortgage that they wanted.

A self-cert borrower on the way to the bank

However, the complete withdrawal of these products will ensure that many self-employed people will be totally unable to obtain a mortgage that they are well able to afford.

The FSA has made one sensible suggestion – banning the issuing of mortgages that contain ‘toxic’ combinations of high risk factors. For example high loan to value lending combined with a poor credit record.