The Financial Services Authority (FSA) is to ban self-certification mortgages, The Times has reported.
These mortgages allow customers to take a mortgage without strict checks on their income, and with no pressure on them to prove their income. This area of the mortgage market grew to be worth many billions of pounds in the early 2000s with the ever-increasing hunger for mortgages.
However, this part of the industry has been criticised and the mortgages were dubbed ?liars? loans? by critics, and have been held up as being partly responsible for the collapse of the housing market and the financial crisis. The FSA will now introduce a rule to force lenders to make customers provide evidence of their income.
This will be one part of the FSA?s much anticipated mortgage review, due to be published next week. The report will encompass all aspects of the mortgage market and set new regulatory parameters which should last for many years.
Experts estimate that self-cert mortgages numbered around one third of all new loans in 2007 ? worth about ?100 billion.
Buy-to-let mortgages will also come under new scrutiny. These account for around 12 per cent of all properties, equal to more than three million homes.
In the past year, new loans in self certification and buy-to-let have plummeted to virtually zero as lenders have shied away from these areas of the market. Self-cert mortgages were mainly targeted at the self-employed who might otherwise have found a mortgage difficult to find, with irregular income. Defaults on self-cert mortgages have been at higher rates than the average.
Only one lender ? Platform, part of Britannia Building Society ? is now writing new self-cert loans.
