Self certification mortgages may be banned

Self certification mortgages may be banned under new proposals by the Financial Sevices Authority (FSA).

The FSA is proposing major reforms to the UK mortgage market to ensure that it works better for consumers.

One of the key proposals is that “self cert” mortgages should be banned and that all applicants will be required to verify their incomes in the future.

Borrowers taking out “self cert” mortgages did not need prove their income, making these some of the most popular mortgages during the property boom years.

Another key proposal from the FSA is that all mortgage borrowers will have to undergo an affordability test to ensure that they have the means to meet their mortgage commitments.

Lenders will also be made responsible for assessing a borrowers ability to pay and all mortgage advisors will be personally accountable to the FSA for their conduct and service to consumers.

Stressing the need to create a more sustainable mortgage market, Jon Pain, FSA managing director of supervision, said:

“The mortgage market has seen extraordinary upheaval over the last 18 months and whilst it has worked well for the vast majority of borrowers, some have suffered great financial distress.”

“We recognise that we need to bring about a step change in regulation and we need to act now to address the issues we have identified.”

The proposals are designed to tackle the problems identified while maintaining a vibrant and sustainable market. But the FSA has not ruled out further change if the initial proposals do not have sufficient effect, including caps on loan-to-value, loan-to-income or debt-to-income.