Mortgage seekers need rational advice – FSA

Good mortgage advice will make the mortgage market a safer place to be for consumers, even if that means encouraging homebuyers to be a little more ‘rational’ with regard to what they can afford, according to the Financial Services Authority (FSA). 

The recent recession has taught one very important lesson, according to Ed Harley, head of mortgage policy at the Financial Services Authority. 

“It has taught me the importance of being prepared to review your assumptions about how markets work… Some of the assumptions that underlay our original approach to mortgage conduct of business, some of those assumptions about how customers interact with financial services, how rational they are and how rationally sometimes even firms operate, have been challenged by the recent financial markets,” he said. 

Consumers at risk of burdening themselves with an unsustainable debt have emphasised more than ever the need for the voice of reason that is provided by a good financial adviser, who can, among other things, calculate what their desired property would entail, in terms of  mortgage repayments. 

“What we have tried to do is recognise the importance and the way that a face-to-face discussion with a consumer is a unique opportunity to understand what their needs are, and what their circumstances are,” he said. 

What the FSA seeks is to ensure that mortgages are not given to those for whom they would bring an unmanageable burden of debt. As such, the notion of ‘affordability’ was a safety measure to protect vulnerable consumers, and not a barrier to obtaining a mortgage. 

The Self-Certification Mortgage Issue 

Ed Harley stated that, again, the issue of demanding income for self certification mortgage applicants should be seen as a safety measure, and not an attempt to exclude anyone from the mortgage market. 

“What we do not understand is why a self-employed person cannot provide any verification of their income,” he said. 

While self-employed people unable to support repaying a mortgage should recognise that, Ed Harley emphasised that, equally, it was essential that those who can are able to get one. 

With that in mind, the demands for documentation should be firm but reasonable: “Across the industry there are practices where income verification implies a number of years of salary information or a number of months of bank accounts to verify the income is there. We do not necessarily think that level of income verification is required.” 

Lenders and the FSA should now sit down and define what a good definition of ‘income verification’ might be, he said.