MSE News: FSA plans self-cert mortgage ban

edited 19 October 2009 at 3:05PM in Mortgages & Endowments
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  • koexelekkoexelek Forumite
    7.8K Posts
    It's great news for the Inland Revenue.

    Any self employed people looking for a mortgage in the near future need to cut down on the cash in hand work now :cool:
    I am a Mortgage adviser
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • koexelek wrote: »
    It's great news for the Inland Revenue.

    Any self employed people looking for a mortgage in the near future need to cut down on the cash in hand work now :cool:

    Exactly.

    Which, dear friends is a wonderful side product of these recommendations for the government's purse strings.

    I'm a cynic on these things ;)

    Self Certs were originally designed only for the Self Employed - unfortunately lenders were at fault to offer them to employed applicants, as were certain unscrupulous brokers who milked them for all they were worth.

    I have had several new clients come to me over the last 2 years whose previous broker had gotten them a 'Fast Track' mortgage. Now most people didn't realise why they couldn't get a remortgage 2 years later....there are a lot about to have a shock soon..

    Fast Track was the next step of Self Cert - mainly for the employed, if you put down 25% deposit, lenders wouldn't ASK for confirmation of your income - basically self cert in all but name.

    That has now changed though - if you see 'Fast Track' now, you will now have to confirm income.

    A lot of these developments announced today have already been implemented by the lenders - so it annoys me greatly when the media go off on one about it.

    Watch the news people, it will be the next thing to blow up.
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it.
    This signature is here as I follow MSE's Mortgage Adviser code of conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • Quote from your article:
    Your ability to repay will be assessed on your disposable income after all expenditure. This could go as far as having to declare how much alcohol you drink, how often you go on holiday and what clothes you buy.
    The more you spend, the less likely you are to get a mortgage. The days of borrowing a multiple of your salary could soon be over (though many lenders have already abandoned this method).
    But that's ridiculous. It's assuming that people base their "luxury" expenditure on their entire net income, rather than on their net disposable income. Surely it's only the financially illiterate and/or irresponsible (which would be indicated by other aspects of the state of their finances) who approach their expenditure in this way?

    If I spend a lot on luxury items, it's because that's what's left after I've made sure my mortgage is paid :rolleyes:
    :)Operation Get in Shape :)
    MURPHY'S NO MORE PIES CLUB MEMBER #124
  • koexelek wrote: »
    You are probably worrying that your "deal" is coming to an end, not your actual "mortgage".
    For example, you might take a 25 year mortgage with an initial 5 year fixed rate.
    In your situation, it means you might not be able to get a new deal at the end of the initial 5 years, but you don't have to clear the mortgage until the end of the 25 year term.
    As long as you continue to make all payments on time, you should have nothing to worry about.
    If you are currently on a fixed, the chances are that your paymemts will go down, anyway


    Thanks! I really do hope so. Glad this thread came up its cleared alot up. Thanks everyone
  • benjo wrote: »

    I might be naive, but this could even be good news for the self employed. Presumably all self employed prove their income to the IR each tax year and so it shouldnt be a problem to do just the same with a mortgage lender, if this is the case wouldnt it be possible to qualify for high street lender deals at more competative rates than the self cert rates?

    I would prefer that my lender didnt lend me a penny more than I could afford to repay, I love my home and I never want to risk loosing it.

    My experience tells me.

    'Loving their home', or potential home is exactly the reason why people borrow as much as they need to, and will often stretch themselves.

    The problem with the proposals

    The big issue is that no self certification and no fast track, under the proposals announced on Monday, means that Lenders will look for three years accounts showing steady or growing profit before they will approve a mortgage.

    Not possible if you have recently started trading.

    Not possible if you have invested heavily in the business to get it started or to grow it.

    Your accountant's job is to get your accounts efficient for tax purposes (within the law), not to show the most net profit for mortgage purposes.

    Examples and clarification

    If this all seems strange to those of you who are not self employed or not in the mortgage business let me give you two examples.

    1. Our locum GP client who wants to buy her first home. Locums are self employed and widely used in the NHS. She earns £70,000 as a Locum but has been trading about a year.

    Under the proposed rules there is no way she would get borrowing.

    If she takes an employed job tomorrow on £40,000 she would meet the proposed guidelines for borrowing even though her net income is now £1,250 less a month.

    2. Our client is a company owner who employs 12 people. His business has been hit by the recession and his profits have dropped.

    He needs £125,000 to invest in the business to get into a new market to ensure the survival of the business, future profit and the continued employment of his 12 staff.

    He cannot get business funding from the bank as they have no appetite for it. He is happy to raise the money on his home where there is good equity.

    Under the new proposals he would have no chance of a remortgage. His business will collapse and 13 more people will be on the dole queue.

    The big picture

    Many employees in this country depend on the self employed to give them a living.

    If we make it difficult for the self employed to provide homes for their families, and funding for their businesses. We will all be in much more trouble than we have seen in the past two years.

    What really happened to cause us all to be in this mess

    Despite what the press would have you believe. The banks ran out of money because they got greedy and lent money they did not have. NOT because the British man in the street stopped paying.

    Self certification, fast tracking lending and 100% loans did not cause this problem regardless of their respective merits to borrower and lender.

    Just a view from the front.

    I am a Mortgage Adviser

    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • edited 21 October 2009 at 3:59PM
    *MF**MF* Forumite
    3.1K Posts
    Part of the Furniture 1,000 Posts Combo Breaker
    edited 21 October 2009 at 3:59PM
    ^

    Using your examples - if the powers that have now established rules that dictate that the locum is not sufficiently credit worthy (yet) to obtain a mortgage - then by what criteria have they established that the secretary the locum employs is - common sense dictates that - if things get tight - the secretary as an employee may in fact be the greater risk.

    Ditto - the 12 employees in your example.

    Logic would dictate that the rules applied to the self employed should extend to those who are employed by the self employed - but logic is the missing ingredient in these rules, imho.
    If many little people, in many little places, do many little things,
    they can change the face of the world.

    - African proverb -

  • [.... lots of stuff I agree with deleted ....]

    What really happened to cause us all to be in this mess

    Despite what the press would have you believe. The banks ran out of money because they got greedy and lent money they did not have. NOT because the British man in the street stopped paying.

    Self certification, fast tracking lending and 100% loans did not cause this problem regardless of their respective merits to borrower and lender.

    This is where I disagree.

    My take on the matter is that self-cert DID cause the problem - it just wasn't self-cert in the UK.

    If you look at what caused the liquidity crisis, it was basically that financial institutions were securitising - lending money they had, but then turning those blocks of mortgages into bonds that other financial institutions (who wanted a broad exposure to the property market, not individual mortages) would buy.

    The problem came, particularly in the US, where there were high fees paid to brokers for getting ANY OLD MORTGAGE, and no-one in the fee-earning chain really cared whether it would run into default, since the broker got the commission up front (few clawbacks in the US), and even the bank who provided the mortgage just needed it to stay "being paid" for the 2-4 months it took to securitize that tranche.

    In the UK, it was only really Northern Rock that had bet the farm on being able to re-sell these mortgages (in 2007, they wrote about 70bn of securitised business, then came Abbey and HBOS with about 50bn each but as part of much bigger groups, then in fourth came GMAC at 15bn.)

    Northern Rock was suddenly unable to sell on a tranche, not because it had made risky loans, but because the (international) buyers had stopped buying, because they were starting to be burnt by tranches they'd bought in the US...

    ... and the rest is history.

    It's hard to see how the FSA can deal with that - short of locking up Britain, and stopping us being part of the international money markets.



    Oh, and as an IT Contractor who made a lot of money last year, but none in 2007 (when I was working for a startup which ultimately failed), I can wave bye-bye to my chances of a remortgage until 2011.
  • brit1234brit1234 Forumite
    5.4K Posts
    Self certification, fast tracking lending and 100% loans did not cause this problem regardless of their respective merits to borrower and lender.
    :rotfl:

    Sorry have to disagree very strongly. High multiple, self cert, fast track, high multiples, interest only, buy to let gearing did cause the problem. It brought down a number of british banks because of over risky lending. This is the reason house prices went so high and will fall back to normal.

    Banks lent to much, borrowers borrowed to much and on many occasions lied. Internationaly property prices went up as credit limits were increasingly erroded and poped when the US was the first to fall and all the rest of the Western countries followed on.

    Its great these loans have gone as people liaing about their wages were pushing prices up further.:mad:
    :exclamatiScams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.

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  • brit1234 wrote: »
    :rotfl:

    Sorry have to disagree very strongly. High multiple, self cert, fast track, high multiples, interest only, buy to let gearing did cause the problem. It brought down a number of british banks because of over risky lending. This is the reason house prices went so high and will fall back to normal.

    Banks lent to much, borrowers borrowed to much and on many occasions lied. Internationaly property prices went up as credit limits were increasingly erroded and poped when the US was the first to fall and all the rest of the Western countries followed on.

    Its great these loans have gone as people liaing about their wages were pushing prices up further.:mad:

    Perhaps I did not make my point clear.

    The Banks caused the problem, not the British mortgage borrower defaulting on mortgages.

    There is nothing wrong with "High multiple, self cert, fast track, high multiples, interest only, buy to let" in themselves - only in how they were traded by banks.
  • SOLASSOLAS Forumite
    1 Post
    Part of the Furniture Combo Breaker
    Newbie
    Do the proposed new rules on self cert apply to property owners in the rental market. I wonder what would happen if a landlord was coming to the end of a mortgage and needed to get a new one, his property is in negative equity as it hasnt recovered in value due to the recession so he could not pay off the loan, nor sell as the property would not realize the value as when he bought it
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