MMR: FSA kills off self-cert and fast-track

13 July 2010 | By Natalie Thomas

The Financial Services Authority has released its consultation paper on responsible lending today, which puts an end to self-cert and fast-track mortgages by requiring lenders to verify borrowers’ income in all cases.

It says the lender must have evidence that the declared income figure is accurate.

In its paper it says: “Although lenders will be responsible for verifying income and assessing affordability, consumers will be more actively engaged with the mortgage process by providing evidence of their income to demonstrate they can afford the mortgage”

But it says to give lenders the flexibility to be innovative and meet the needs of different market segments, it does not propose to be prescriptive about the means of evidencing income, such as paper-based or electronic based.

The evidence must come from a source independent of the applicant, but this can come from an applicant’s employer, bank, accountant or HMRC.

It also says in relation to variable sources of income it expects lenders to consider the variability of income over time, which may influence the period over which income is verified.

It also expects lenders to use human intervention when verifying income.

The FSA says it has carried out its own analysis which shows that fast-track mortgages do have a lower rate of arrears and possessions than either self-cert or income verified, although fast-track did not perform equally well among all lenders, particularly for similar lenders, where performance was generally worse.

It recognises that most fast-track lending is good quality, with poorer quality loans generally being channelled through the self-cert. However it says the absence of self-cert is likely to heighten pressure to accommodate consumers who are unable to prove income through alternative routes.

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Readers' comments (62)

Laurie | 13 Jul 2010 8:34 am
the FSA are now helping the Mortgage adviser by removing the fasttrack HOW! so they now suffer from the worse market in years reduced commission More paperwork better Quilfications More Personel Financial Check why don't they just come out and say they wish to get rid of independant advisers and stop all this unfair treatment they are treating us as guilty without evidence!!!
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a suter | 13 Jul 2010 8:40 am
FSA at it again, BIG BROTHER with a stick, god leave us all alone.
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Tony Joannou | 13 Jul 2010 8:47 am
Self cert was dead already so all the FSA are doing is putting up the cost for lenders which will be passed on to the consumer because now all cases need human intervention.

Well done FSA - prolong the recession why dont you.

I thought that the FSA was dying so how come they are still coming up with stupid ideas?
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Anonymous | 13 Jul 2010 8:52 am
This is a step back for the mortgage market, any Mortgage Advisor who is not concerned of the times to come should Be
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Colin | 13 Jul 2010 8:55 am
so the FSA admit that fast track loans perform well in terms of arrears, so i know what we will do, lets abolish it and stiffle the industry yet further.......who will lose out ?...yes in one...its the customer....where do the FSA think the huge cost of checking every single applications income documents is going to be absorbed ???......self cert yes, but fast track...sledge hammer to crack a nut!!!!!!!!!!!!!!!
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Kevin Fowler | 13 Jul 2010 8:59 am
This is going to be a much bigger issue for lenders than brokers as their underwriting costs will increase significantly. I predict this will work out in brokers favour as cost of administrating every mortgage just went up and makes broker distribution look a lot more attractive.
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Bob Bull | 13 Jul 2010 8:59 am
It seems to me that the FSA is going well beyond it's remit as a 'regulator'. Rather than regulate the mortgage market, it wants to run it, making decisions best left to those who actualy operate it.
On what basis can they justify this interference with lending policy?

I do not believe that this was ever the intention when the FSA was first mooted.

There is just too much power in the hands of a totally unaccountable body, which lacks hands-on experience of the industry and people they regulate. They are clearly trying to cling on to their jobs by 'looking busy'.

Time to say goodbye FSA.
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Anonymous | 13 Jul 2010 9:03 am
Very clever move by Government (via FSA) to ensure maximum Tax Collection. It seems that the days of "creative accounting" are numbered - with potential borrows begging to pay as much Tax as possible to justify their income! Is this the death knoll for the UK property market?
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Anonymous | 13 Jul 2010 9:06 am
How many more nails in the coffin for brokers. The government (which ever one), the pathetic fsa (don't forget the same people will run the new regime whatever they call themselves)and the banks (who have proved themselves useless and incompetent)have killed the job of a mortgage broker. In fact, it has been dead for over a year now, so take this advice: Stop being a mortgage adviser, change your career and sell something else. I have and couldn't be more happy with no longer having to deal and work in a strangled environment. GET OUT.
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Anonymous | 13 Jul 2010 9:08 am
The end of The Mortgage Broker is Nigh! Be warned!
I do not see any long term term future within the mortgage industry, fewer lenders, The Internet, an end to procuration fees (it will come), aggressive treatment of brokers by lenders (i.e. Dual Pricing, Declining cases then re-writing them directly!).

Many large lenders want an end to proc fees now but don't have the guts to be the first to do it! They will 'push' the FSA with some lovely reasons why proc fees are bad and then that will be it. The guys at the FSA have a short time to prove they are worthy of jobs in whatever the new regulator will be and are doing everything they can now to make changes. They have 'come alive' now they are being closed down!
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