Ban possible for self-cert mortgages

14/10/2009

Self-certification mortgages could be banned under new plans from the Financial Services Authority (FSA).

Newspaper reports have suggested that the "liar loans" ban will be announced in an upcoming review, to be released by the City regulator next week.

The mortgages, which were popular among borrowers in the run-up to the onset of the credit crunch in 2007, allow applicants to enter their own salary levels without providing evidence that they are telling the truth.

A borrower's income is a crucial consideration for mortgage firms when they decide how much credit to offer - as those who earn more are more likely to be able to repay larger loans.

However, if a self-certification applicant lies about their income, they can get a far larger loan than is suitable, leaving them at a higher risk of falling behind on repayments and eventually having their property repossessed.

The loans have largely disappeared from the market due to the credit crunch, which has led to a general tightening-up of criteria for borrowers.

Meanwhile, the Council of Mortgage Lenders (CML) has published its submission to the FSA's mortgage review.

The group argued that overly tough regulations for lenders could stymie the housing market recovery.

Michael Coogan, the CML's director general, said: "The FSA faces a number of challenges and potential pitfalls in progressing its review too quickly.

"Perhaps the biggest of all is to resist external pressure to implement measures at a time when the mortgage market has self-corrected many of the past problems, but is still not functioning effectively."

Tags; Housing Debt and Bills, Young Family Finances,

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