With the introduction of the MMR, self-cert seemed consigned to the history books as the embodiment of a market that had run away with itself.
By 2007, ‘liar loans’, as they came to be known, accounted for around 9 per cent of loans.
Initially they were used mainly by the self-employed, who struggled to demonstrate they had an appropriate level of income to support their repayments. But aggressive post-crisis criteria tightening saw more and more employed borrowers turn to non-income-verified products as they battled to obtain finance. Overall, says the FCA, nearly half of all self-certified mortgages were taken out by employed borrowers.
As the regulator has previously said, self-cert loans “perform much worse” than fast-tracked and income-verified loans, which makes the argument to ban them that much stronger.
When any product or service is banned, there are of course people who suffer – the self-employed in this case. But the fact remains that self-cert loans were abused and the only way to prevent this continuing was to outlaw them altogether.
The problem is, however, that UK regulation is a lot more prescriptive over income verification than the Mortgage Credit Directive, which comes into effect in March. As a result, this has provided an opportunity for firms to set up in another European country and offer self-cert loans in the UK.
Technically, selfcert.co.uk, the firm that seized upon this loophole and launched last week, has done nothing wrong – but this throws up an ethical dilemma. The firm claims it has been inundated with enquiries and, as a result, has had to put the brakes on new lending just five days after launching.
This is concerning on many levels. First, does this demonstrate that regulation is alienating a significant proportion of the population when it comes to accessing finance? And how many of the 4,700 potential borrowers who have allegedly contacted the firm are ‘chancers’? We will probably never know.
Self-cert was banned in the UK for a reason: the wellbeing of consumers is at stake.
As a responsible and professional industry, it is our job to inform and educate the general public about the dangers of these loans.