Self-employed will still get a mortgage, says FSA

Self-employed workers have been assured that new proposals by the Financial Services Authority will not block them from obtaining a mortgage. 

“The FSA’s proposals on self-cert mortgages will not block access to the market for the self-employed,” said Lesley Titcomb of the FSA this week. 

This follows the publication in September of a number of proposed guidelines by the FSA to ensure more cautious strategies by mortgage lenders. 

One of the proposals was that all lenders should require verification of a mortgage applicant’s income, which meant an end to self-certified mortgages where the bank accepted on trust an applicant’s declaration of what he or she earned. 

This was widely regarded as a limitation of the scope to obtain a mortgage by those self-employed people whose income fluctuated, or who were unable to provide professionally prepared accounts. 

It was also seen as a response to those borrowers who exaggerated their income on a self-cert mortgage application, in order to obtain a larger mortgage and thus increase the likelihood that they would at some time have difficulty with mortgage repayments. 

The FSA also proposed banning the sale of mortgages based on certain ‘toxic combinations’ that led to a higher risk of repayment problems. These could include giving mortgages with a high loan-to-value ratio (i.e. mortgages equal to 90% or more of a property’s value) to borrowers with imperfect credit. 

Another ‘toxic combination’ would result when a mortgage lender took a soft view of the ‘affordability’ of a loan for the individual client, and thus providing them with a mortgage that would eat up an unjustifiably large amount of their monthly household income.