FSA self-cert probe finds affordability check failings

A Financial Services Authority probe into the selling of self-cert mortgages has highlighted failings by brokers in carrying out adequate affordability checks.

The FSA says that despite improvements from lenders, there are still significant failings by brokers relating to affordability and the suitability of the checks they carry out.

The watchdog says lenders are responding to messages from the FSA and strengthening systems and controls on self-cert mortgages, and stresses no systematic fraud is being carried out by brokers relating to income inflation.

The review found that in general lenders have strengthened systems and controls, leading to increased detection rates for fraudulent applications. But a number of lenders have had to undertake corrective action.

Clive Briault, FSA managing director of retail markets, says: “The FSA reviewed sales and advice on self-cert mortgages by small brokers. Mystery shopping of 41 intermediaries found there had been no systematic fraud regarding inflation of income to obtain a larger mortgage.

“But three firms were prepared to discuss with clients how they could inflate their salaries and we have followed this up with the firms concerned.”

In supervisory visits, the FSA found that in 47% of 249 cases reviewed firms were unable to show it had appropriately assessed affordability. And in 36% of cases either no reason was given, or the reasoning was unclear, as to why a self-cert mortgage had been recommended.

Wayne Unsworth, adviser at Hallmark-ifa says his firm will not advise on self-cert mortgages and reckons the FSA is spot on.

He says: “We’ve steered clear of self-cert mortgages because of all the problems the FSA found.

“For us it’s a compliance issue. We just feel it’s too risky for us to get involved with self-cert.”

But Martin Reynolds, head of sales at BM Solutions, says the industry should be pleased with the findings overall, which he says are positive.

He adds: “At BM Solutions we have dedicated time and energy to ensuring fairness and transparency in the self-cert market. The research carried out by the FSA supports the principle of ensuring the correct products are sold to the correct clients for the right reasons.

And Gerry Bell, director of mortgage marketing, GE Money Home Lending, says: “We welcome these findings. While the FSA is right to remain vigilant, the results show that the problematic cases of the few lenders highlighted in media reports last year have been addressed and progress has been made. We believe the self-cert market is now the stronger for it.

“Changing life-styles and flexible employment patterns mean self-cert products are now open to a much broader pool of consumers.

“The challenge for lenders is to offer products that meet this growing need but stay within regulatory guidelines.”