Official. No more Liar loans. Celf cert banned.

RenovationMan

wotsthat wrote: »

It's always seem fairly obvious to me. If you are self employed and want a mortgage why not keep some decent accounts. That way income could be verified and affordability assessed.

Don't self-employed people keep accounts and records anyway? How else do they know how much tax they need to pay for example?

Depends on how long they have been trading and the time period banks want accounts to run over. I worked as an IT contractor for three years and earned an average of £100k over that period (and paid a lot less tax than as a PAYE due to the usual tax dodges). I had very accurate accounts, but if the banks insisted on (say) 3 years worth of accounts to prove income, I'd have been snookered.*

Contrast this with a permie who just needs to rock up with 3 months worth of pay slips and no indication of how secure the company he works for is.

shortchanged_2

Well some of these new guidelines are spot on and what's needed.

The thing is I don't see how house prices can really be pushed upwards from their current point with this criteria in place. As obvious it was that the housing boom was fuelled by a glut of easy credit, if that tap has now been permanently turned off :dance: then it is unlikely that buyers will be able to afford current prices so prices will have to come down eventually, more in line with pre boom prices.

Just a reminder this is what they are suggesting. Lets hope they show some balls and go through with it and rigorously enforce it:

"The proposals will see prospective borrowers - whether they are first-time buyers, right-to-buy tenants or home movers - get the right information and advice, at the right time, and ensure mortgage lenders will be properly checking each applicant's realistic ability to repay their mortgage," the FSA said.

Specifically, when lenders assess a mortgage application, they will have to:

assume interest rates may rise from their current low levels.
not let borrowers rely on the possibility of rising house prices to claim they can eventually repay.
assess interest-only mortgages as repayment ones, unless there is a "believable" source of money to pay off the loan."

MacMickster

From the BBC website

http://www.bbc.co.uk/news/business-16215629

The proposals will see prospective borrowers - whether they are first-time buyers, right-to-buy tenants or home movers - get the right information and advice, at the right time, and ensure mortgage lenders will be properly checking each applicant's realistic ability to repay their mortgage," the FSA said.

Specifically, when lenders assess a mortgage application, they will have to:

• assume interest rates may rise from their current low levels.
• not let borrowers rely on the possibility of rising house prices to claim they can eventually repay.
• assess interest-only mortgages as repayment ones, unless there is a "believable" source of money to pay off the loan.

So it won't only be self-cert mortgages going the journey, but interest only mortgages as well. Whilst current borrowers under the old looser criteria will still be able to remortgage (with the same lender only I presume) this should stop most new chancers from getting a mortgage.

I would hope that when assessing affordability, lenders would have to use potential future interest rates of at least 7%. Anyone who couldn't afford repayments at that level should not be applying for a mortgage in the first place.

Its a shame that common sense rules such as these had not been applied all along.

MacMickster

wotsthat wrote: »

I've just taken a mortgage to buy a holiday apartment with a high street lender. Photocopy of my last pay slip - job done. No contact with employer at all.

If you already bank or borrow from them then they may only need a single payslip to verify that nothing has changed from information that they already hold.

The difference between employees and the self-employed is that the latter can run up substantial losses running their businesses, which makes them a far greater risk than an employee. This is why lenders want to see a strong history of profitability.

doire_2

RenovationMan wrote: »

To perhaps move the discussion back onto topic and away from the usual bickering...

If self certified mortgages are withdrawn, how will self-employed people be able to buy a house?

Do they not keep records of how much they earn? They do pay tax.

LadyLL

I think there is lots of valid reasons as to why we are in this position.

Blaming "Liar Loans" etc is just a cover up for the shocking ways our banks and lenders have been throwing mortgages and loans etc to any person who clearly cannot or couldn't afford them,wether Self cert or by other means.

Of course there is those folk who "lied" to borrow. But we can't just blame those who are self employed.

Batchy

the 125% were to blame not liar loans.

liar loans, mean people who are not too honest about paying tax on all their income get a house that reflects there income (real income)...

I seriously think that most people did the honest thing and just borrowed too much no one was bothered at 100%LTV when prices were increasing by 10% per annum as a result of these relazed lending practices.

Its the valuations that were to blame... who makes valuations... estate agents, so it was the whole market... it went mad... as a result banks made easy money. I just dont see how no one could see... out of all these intelligent people that this just wasnt sustainable??

Seriously...

FSA
BOE
government
No boom bust... !!!!!!?
Banks
Bankers
Directors
Managers
etc, etc

to say one thing changing now, will change anything is ridiculous, the change has happened this is the protection so it doesnt happen again!

But inflationary payrises will start madness again for sure.

Deflation risk is high too... who knows what will happen, who has the crystal ball?

nollag2006

geneer wrote: »

:rotfl:deary me. Righty oh. I'll get "Strait" on that.

What's a Celf cert?

Another geneer own goal!

:rotfl:

Buy_It_Now

nollag2006 wrote: »

What's a Celf cert?

Another geneer own goal!

:rotfl:

Ha ha, geneer the no.2 is a real clown.

shortchanged_2

Batchy wrote: »

the 125% were to blame not liar loans.

liar loans, mean people who are not too honest about paying tax on all their income get a house that reflects there income (real income)...

Have you looked at the video clip posted by Brit Batchy?

It clearly shows back in 2003 that buyers were being told by mortgage advisors/brokers to lie about their income in order to get a bigger mortgage than they would get if they used their genuine earnings.

Now this was obviously fuel for the fire which pushed up house prices. So liar loans were a major player in pushing up house prices because they created a false market.

We all know markets are dictacted by supply and demand. Well if there is strong demand and that demand is pandered to by ever increasing amounts of lending then this will undoubtably add to the increased pressure on rising prices. The bottom line is if you can't afford it, you can't afford it. If there was less access to liar loans then there would not have been the finance available to push up house prices as they did.