The Money Programme has not just put self-certification mortgages but the entire industry under the spotlight. Many people do not know the difference – or indeed want to know the difference – between pension mis-selling, endowment mis-selling and encouraging customers to lie about their income for a self-cert mortgage. All they see are more headlines about what they perceive to be a corrupt industry.
Given the political concern over levels of household debt, it is not surprising to see a Labour politician, James Plaskitt MP, stepping into the fray. Plaskitt is a member of the Treasury Select Committee, a cross-party committee of MPs whose job it is to scrutinise the workings of the Treasury and the FSA among others. The committee makes recommendations which have an effect both on policy making and the way the industry is covered in the media.
Commenting on the findings of the programme, Plaskitt says: “A lot of the mortgage industry is just out to get business and is clearly not asking the questions that it should be asking”.
He adds: “These high income ratio mortgages have got to be choked off as they will lead to unsustainable debt. The unchecked potential to borrow will fuel house prices to the detriment of anyone trying to buy. This is grotesquely unfair to first-time buyers.”
An understandable political reaction to the issues raised in the programme but one that does not reflect the fact that this activity was undertaken by a minority and that the majority of people working in the mortgage industry are honest and want to give their customers a good deal.
This has a damaging cumulative effect on the industry as a whole. During The Money Programme we saw an adviser saying: “The lenders don't give a monkeys. What they say is you basically do not have to prove your income. They do not want a bank statement. They have created the market.”
Well, the lenders do give a monkeys. Ensuring that customers can pay their mortgages is key to having a healthy mortgage market. It is nobody's interest to create a situation whereby people make a fraudulent application which means they may not be able to meet their repayments in the future.
Self-cert loans certainly have a role to play in the market. They are a niche product designed for people who cannot prove their income by other method. For the self-employed and others who do not have a regular income they are essential. As the MCCB pointed out self-cert mortgages are in most cases not the most appropriate product for salaried employees. It is wrong to encourage clients to lie when filling in their mortgage application forms as the person who may end up paying the highest price is the customer who cannot afford the debt they have taken on.
Clearly those consumers who do lie have no real understanding of the implications of their fraud or how they might cope with a rise in interest rates or a change in personal circumstances.
These mortgages make up a small proportion of the market and claims in The Money Programme that self-cert could be responsible for a “self-feeding frenzy” culminating in a “bubble effect” certainly seem to be overblown. There is no evidence that the kind of abuse witnessed during the programme would have a detrimental systemic effect. However industry watchers, the media and politicians will be paying much closer attention to whether or not the self-certification market increases in proportion to other loans.
Under the FSA regime lenders will have to show that they have taken into account a customer's ability to pay back the loan. Affordability testing has been given public emphasis in recent weeks by both Philip Robinson at the FSA and Carol Sargeant – who stressed the issue in her last public speech before leaving – at the BSA's annual lecture.
If no evidence points to the contrary lenders have to assume that advisers and customers are telling the truth. This is a basic requirement and is how it should work.
The one good thing to come out of The Money Programme is increased public awareness. Customers will have a greater understanding of the potential risks they run. The small minority of advisers who encourage fraudulent activity have been exposed, hopefully discouraging any others who may be tempted. And lenders will take care to ensure that the correct procedures have been followed.