Jonathan Cornell is associate director of Hamptons International Mortgages Nothing sells like bad news. No doubt those who missed The Money Programme have been informed by now of the outrageous world of self-certification mortgages and the suspension of three Birmingham Midshires branch-based sales advisers. These staff and some mortgage brokers were shown pressuring would-be borrowers to inflate their earnings to secure the mortgage they required.
The programme quoted Desmond Fitzgerald, an expert in financial markets, who suggested fraudulent applications may be behind the growth in house prices (when he was expecting prices to fall). Could he be looking for a scapegoat for his own misjudgement? Either way, for an expert he is remarkably poorly informed – clients who are scrupulously honest or who go to more ethical brokers could get those same loan amounts from non-status lenders. Admittedly the rates would be slightly higher but not by much. The money is there if the borrowers want it.
If journalists probe any industry deeply enough they will find miscreants – just think of the police force, MPs, sportspeople. Last week the News of the World even managed to dredge up a police officer who helped people get fraudulent mortgages. We know the kind of practice shown on the programme is not reflected throughout the industry but it would be naïve to think it does not happen or that it has not been going on for a while. The truth, both from a broker and a lender point of view, is that self-cert is a good way of doing more business.
Self-cert has helped support the market. Despite its incessant flow of great ideas this government has not managed to make home-ownership one bit easier. Meanwhile, the industry still works on the same income multiples as when interest rates were four times higher than they are now.
The programme went out of its way to make the sale of self-cert mortgages look dodgy. But most self-certifiers will receive up to four distinct statements of the monthly cost of their mortgage before they commit to purchase. One of the key facts about the cost of home-ownership is that most people need a mortgage to buy a property. This market is demand driven. Nobody can be forced to take out a mortgage – people need mortgages.
If self-cert is so crooked, why has the industry's regulator-in-waiting, the FSA, just performed a U-turn on the sale of self-cert mortgages to the employed? Surely the FSA is renowned for ensuring consumer protection isn't it?
So, how have the lenders responded? Interestingly there has been a distinct lack of response; nobody has announced that they are no longer permitting self-certification – in fact none of the major self-certification lenders has said anything at all.
It's almost as though they knew this sort of thing was happening all along.
Rob Clifford is managing technical director of mortgageforce
Self-certification is going through an identity crisis. First there was the BBC documentary and now the News of the World has exposed a bent copper in the middle of a mortgage scam. The policeman was caught raking in a fortune helping asylum seekers and benefit fraudsters get mortgages they were not entitled to through self-cert.
He told undercover reporters: “We take a passport, a utility bill and a letter from your employer to the bank. They don't phone anybody, they don't check anything.”
Is self-cert a dirty word or is this latest wrangle with consumerists just a storm in a teacup? In the late 1980s a high proportion of our clients seemed to have jobs for life. Hundreds of local mortgage hunters worked for British Rail, the NHS, NCB, Rolls-Royce, Barclays, NatWest or Courtaulds. Most expected to see out their careers with the same employer. But now some 22% of the workforce is self-employed. One lender estimates that as many as 45% of UK workers receive an element of income that is difficult to evidence. Self-certification of income is a necessary evil.
For several years my firm kept self-cert up its sleeve for exceptional clients, some notable ones including a member of the England cricket team, a leading soap star and a millionaire restaurateur.
The cricketer earned some £45,000 per year from after-dinner speaking and similar off-pitch events which enhanced his sporting salary. The TV celeb was forever opening supermarkets and endorsing consumer goods. The restaurant chain owner seemed to generate a never-ending cash stream not easy to prove in the standard way.
Over the past five years we've seen many hundreds of lower earners than these for whom proving earned income is less than straightforward. Ironically, it is these lower paid workers who require the most help in terms of lenders broadening their underwriting judgements.
It is perverse that in 2002 some 24% of our clients were committing to mortgage repayments which were cheaper than the rent they were leaving behind yet many of them fell significantly short of the lender's income multiples. Many found positive solutions thanks to lenders who applied affordability calculations instead of – or as well as – multiples but many of them had to be declined. What I find irritating is that lenders appear to be polishing their halos and stating their horror at the revelation that self-cert products are being mis-sold by their own branch staff and by some brokers. For some lenders self-cert has become the key product type in their portfolios – the brilliant weapon that has enabled them to massively increase their market share. Only time will tell whether more checks will be introduced by lenders but the issue is not going to go away. I wish it was just a storm in a teacup.