At the height of the housing boom, self certification mortgages accounted for around 40 per cent of all mortgages. This week, the mortgage industry regulator the Financial Services Authority (FSA) admitted it may have made a mistake in allowing the growth in this mortgage type.
The media has labelled the self certification mortgage the ‘liars’ mortgage, as this sort of mortgage required no proof of earnings. The self cert mortgage was originally designed for business owners such as the self employed or freelancers whose income was irregular and difficult to prove. However, as the mortgage-type was open to everyone it was easy to take advantage of and many firms allowed borrowers to inflate their income to purchase a higher value property.
Some mortgage lenders saw the responsibility of checking the income as lying with the mortgage advisor and some mortgage advisor saw it vice versa. Without stricter regulation, there is little doubt that many took advantage of such as easy method of obtaining a mortgage.
Many borrowers who took out such a mortgage are now struggling to meet their monthly mortgage payments and in danger of repossession and as such, the FSA is now considering whether to place a total ban on self certification mortgages by insisting on income checks for every mortgage. An alternative would be to ban any employee from taking out a self cert mortgage but the decision remains to be made.