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FCA in self-cert warning

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The Financial Conduct Authority is warning consumers of the risks of self certification mortgages after the launch of a new lender earlier this month.

The lender,, is based in Prague and is passporting into the UK using the Electronic Commerce Directive.

Self-cert mortgages – known frequently as ‘liar loans’ because they do not require borrowers to prove their income – are banned under the terms of the Mortgage Market Review. The default rates on such loans were far higher than loans where income was verified.

The regulator says: “Previously, when consumers took out a self-certified mortgage they self-certified that the income stated in their mortgage application was true.

“Because of the harm caused to consumers in the past, this is no longer permitted in the UK and firms must check a customer can afford a mortgage, including verifying their income in every case.

“From 21 March 2016, all firms offering mortgages in the UK (including EEA firms) will have to comply with the Mortgage Credit Directive, which requires a thorough affordability assessment based on information that has been verified by the lender.”

However, the Mortgage Credit Directive is less strict on rules around creditworthiness and income verification.

The directive merely states that the borrower’s income must be “appropriately verified, including through reference to independently verifiable documentation when necessary”, whereas the MMR explicitly states “a firm must not accept self-certification of income”.

The FCA warns that consumers taking out a mortgage from a lender not based in the UK lose their consumer protection rights, including the use of the Financial Ombudsman Service.

The regulator says: “Firms providing on-line services from an establishment in an EEA state other than the UK under the ECD have to comply with the law of that state, rather than with UK regulatory law. If anything goes wrong, the responsibility is with the other EEA state’s authorities.

“Even if a regulated mortgage adviser in the UK recommends such a mortgage, you will not be able to get compensation from that adviser if it turns out you cannot afford the mortgage payments. This is because the adviser is not responsible for assessing affordability.”

The regulator is recommending that consumers take advice from a regulated adviser before making a mortgage decision.

The FCA says consumers still considering using a non-UK mortgage lender should ask what  protection they have if things go wrong.

Buyers should ask to see the mortgage terms and conditions, regulator contact details and information about fees and charges, the regulator says.


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  • Nigel Bennett 27th January 2016 at 4:35 pm

    Surely the FCA should be concerning themselves with the millions of vulnerable people being ripped off every week by pay day loan sharks?

    There is obviously a place in the Market for self-cert mortgages and it would be better if this company was allowed to be based in the UK so that it could be properly regulated and scrutinised, just like Wonga is.

  • Steven Balmer 27th January 2016 at 3:34 pm

    Self Cert and NINJA mortgages had a significant negative impact on UK confidence and brought about conditions for the credit crunch; accepted. They had not been the sole reason and if you consider the loss in equity markets it absolutely dwarfed the Self Cert loan write downs. The UK government, supposedly separate from banking, is using borrowing capacity to control and encourage self employed persons to reflect more accurately when declaring earned income. If they are going to fudge figures for a mortgage or finance product; HMRC should get the benefit.
    The fact is that markets corrected self cert by reducing the availability years before this banning directive came in.
    The FCA and HMRC are arranging, I expect to some degree together, to maximise tax revenues and this Euro-SelfCert product simply undermines their control hence the establishment is against it. Rememeber, these are the same people who brought you self-cert in the first place; as well as LIBOR rigging, PPI mis-selling, 500 million waste on RDR and MMR. This products availability confirms what many stated in that MMR & RDR was a colossal waste of UK finance workers money; given it is now superseded by Europe.
    Whatever way you look at free markets they tend to benefit and act more appropriately with minimum Government(by which I mean FCA and HMRC) interference. There is a demand, someone produces a supply, there will be customers. Where there are customers, there are customer complaints and where there is profit there will also be losses. Despite my reservations and concerns, which I believe are perfectly suitable and sensible with all major transactions, I am glad this person has at least decided to consider UK adults as capable of making their own decisions.
    You do have to be minimum 18 years to borrow after all and these clients did not come from nowhere. I think it is up to individuals to accept the degree of risk they are happy with and get on with taking responsibility should things go wrong, liklewise with providers. This idea of a zero risk world when persons can apply to the FOS for compensation when things go wrong is more a problem than someone offering a product which is in huge demand. The reason for this demand is partly due to the MMR in the first place. We are not all the same, thank God! Please stop the FCA trying to find a perfect one size fits all solution to finance risk as it doesn’t exist and the interference is costing Billions of other people’s money.
    I also accept it is right for the FCA to make people aware of the risk concerning non-UK products will not have the same consumer protection. Taht being done please drop the egotism and let adults make adult decisions.

  • Chris Hulme 27th January 2016 at 11:54 am

    “The regulator is recommending that consumers take advice from a regulated adviser before making a mortgage decision.” Interesting that they would put regulated advisers in this position as I am sure a regulated adviser would not (and could not) recommend a client to a non UK based firm such as this given it would breach MMR rules requiring the broker to evidence income and make affordability checks anyway.

  • Andy Wilson 27th January 2016 at 11:41 am

    “…if things go wrong…”. They will, rest assured, either for the borrower, the broker or the lender. Getting around the rules always ends in tears for someone, and retrospective regulation looms for brokers who bypass the UK rules. Banning self-cert was, in general terms and in most cases, a good thing. Don’t let us get back to the problems it caused.