Banks against end of self-cert mortgages

Britain’s largest lenders are speaking out against new proposals that would ban mortgages that are self-certified, as suggest by the Financial Services Authority.

The watchdog for the city stated that building societies and large banks were in opposition of such a ban because it may lead to an increase in the amount of people who attempt mortgage fraud and also discriminates against those who are self-employed.

In 2007 during the housing boom, almost half of all lending from banks was the result of self-certified mortgage loans, which has been blamed in collapse of the housing and lending market as borrowers who lied about income or overstated their income found themselves in default during the repayment period.

The regulator stated yesterday in a document addressing feedback that on the whole lenders also felt that enforcing a cap on the maximum loan to value home loans would be an unfair limiting practice.  Banks for the most part tend to make higher than average margins on mortgages that fall into the risky category and feel that a ban on these borrowers would not only place some homeowners at a disadvantage, but hurt their earning power.

Large banks instead stated that they would rather tighten regulations surrounding assessments of affordability and supervise lenders that fall into the high risk category instead of banning them from the mortgage market altogether.

Despite the resistance from large banks, small lenders, brokers, and consumer groups were in support of the ban and argued that if there is an income stream available people should be able to verify it.