Shutting the door after the self cert horse bolted

Like most areas within the finance sector, the mortgage market has been far from recession proof and since most of us need a roof over our heads, the fallout has been far reaching and devastating. Homeowners are facing negative equity where their mortgage balance is more than the market value of their property. Prospective first time buyers are not finding it easy either to find a lender that doesn’t expect a large deposit before helping them get on that all important first rung of the property ladder.

So how did we end up in this position? Lack of regulation? Or for the more cynical of us out there, pure greed?

All of the above and a few others besides.  Financial experts place a portion of the blame on the self cert mortgage and as a result it has become the focus of the FSA’s review of financial services which also includes a review of the 100% mortgage deals among others. The official findings of the FSA’s investigation will be announced next week but the self cert mortgage is expected to be one of the casualties.

Introduced for self employed individuals who found it difficult to prove their income, it quickly, and not unsurprisingly, became used by the more unscrupulous borrower. A borrower could easily inflate their income to secure lending because the lenders would ask limited questions about their income. The lenders would use instead the assumption that it would be futile for the borrower to lie about their income as it would eventually mean that they could not afford their mortgage loan and would therefore face repossession. The speed with which a self cert mortgage could be processed by the lender meant that even if the borrower could easily prove their income, they would still use the self cert mortgage in order to speed up the occasionally cumbersome process of proving their income. The number of self cert mortgage deals available on the market at the moment has drastically dropped in the last 12 months and currently stands at 72 mortgage schemes available in the UK today according to Moneyextra mortgage figures, a 70% reduction on the number available at the beginning of 2009.

The removal of the Self cert mortgage is a clear case of shutting the door after the horse has bolted. Lenders have already been tightening up on their lending criteria evidenced by there being so few self cert mortgage deals on offer and seldom mortgages which require less than 15% deposits, so while in the long term it would be wise to very closely regulate such schemes, there is little added value in making them obsolete at this stage and potentially alienate a number of would be borrowers.
 

2009-10-14 13:36:28 © Moneyextra.com

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