FSA Likely to Ban Self-Certification Mortgages
Those who want to apply for a home loan must be in a position to prove to lenders what their income is, as part of an FSA plan to ensure that all those taking out mortgages can afford to pay them back. The FSA has put the proposed ban out for consultation and comment before it decides whether to put it into effect.
As they allow borrowers to declare their own income, self-certification mortgages have been referred to as "liar loans". However, they have also been a crucial product for those who are self-employed.
FSA spokesperson Lesley Titcomb told The Daily Telegraph that though those running small businesses may experience difficulties in getting a mortgage at the commencement of their career, they would be able to get one "in due course". "Ultimately we are making sure that people can afford their mortgages," she continued.
Nearly half of home loans between 2007 and the first quarter of this year were taken out without the borrowers being obliged to demonstrate what income they were receiving.
The FSA has also proposed that criteria for affordability should be stricter for home loans, making lenders responsible for scrutinising whether borrowers are able to repay loans. The FSA did not, however, set out exact measures for assessing potential borrowers.
It did state that under its new proposals affordability would be based on a 25-year term, even where a loan is being taken out over a longer period. It would take account of potential future interest rate rises and would be calculated on a basis determined by repayment rather than interest only.
Mortgages news posted by Garry on 14 July 2010
