FSA does not want to exclude self-employed from mortgage market

11 November 2009 | By Leah Milner

The FSA says its proposals to introduce income verification on all mortgage applications should not exclude self-employed borrowers from the mortgage market.

Speaking at the Mortgage Business Expo in London today, FSA director of small firms and contact centre Lesley Titcomb also challenged the extent of dual pricing by some lenders, questioning why lenders bother to market some intermediary products at all as they are such poor value.

Titcomb also sounded a warning on mortgage brokers referring clients to claims chasers, cautioning that it could put them in breach of data protection rules.

Titcomb said: “This is also a good opportunity for me to dispel some of the myths that are out there about our proposals. Does anyone really think that we really want to stop self-employed people - over three million people - from ever getting a mortgage again?

“And do we really want to make all lenders ask their customers how much they spend on cigarettes and alcohol? The answer to both of course is no, but you could be fooled into believing otherwise by some of the comments we’ve seen so far.”

On dual pricing, Titcomb insisted it was a commercial issue and not an area where the FSA would intervene.

However she added: “Where an intermediary product is of such poor value compared to a direct product from the same lender, we question why lenders would continue to market that product.”

In a warning on claims management companies, Titcomb said: “One area where we have seen anecdotal evidence of business growth and poor practice is where FSA-authorised firms are introducing their customers to claims management companies.

“I would just like to say that if a claims management company approaches your firm, be careful. We have seen firms failing to consider their data protection obligations when referring customers without the appropriate consent, others failing to perform any due diligence on the claims manager they refer to, asking no questions about success rates, the average length of time to complete on a claim and refund policies where fees are taken up front.”

Titcomb said that in one case the FSA has seen, an intermediary referred a customer for claims management despite evidence being held on file indicating the claim was unlikely to be successful from outset.

Readers' comments (21)

Julian Stevens | 11 Nov 2009 5:16 pm
What's the FSA's stance on applications for mortgages on second homes?
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F-Pack Wooden Spoon Team | 11 Nov 2009 5:17 pm
I'm not sure why the FSA has to poke it's nose into self-cert mortgages. If a lender want to take the risk of lending money then they should make that commercial decision based on their business model and not ask for income at all. The problem is that lenders ask for incomes which as the article says can be inflated. Lenders who wish to be in this market place should not request any income verification at all. Otherwise steer clear of all self-cert mortgages altogether and don't offer them. In which case the FSA has no purpose in this matter and should keep out. I have awarded wooden spoons all round to the FSA and the lenders!
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Eddie Mackenzie | 11 Nov 2009 5:22 pm
I believe the FSA should seriously look to put pressure on lenders to review loan criteria especially for the self employed. To asses a case purely on 'Net Proft' is ludicrous. We are all aware self employed clients look to minimise profit via legitimate deductions from profit. We need experienced underwriters to look at each case on merit.
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ROD LEONARD | 11 Nov 2009 5:23 pm
Wonderful Lesley Titcomb, the FSA isn't in the slightest bothered about dual pricing by the banks, (her friends) but indirectly threatens Brokers who (along with their clients) are disadvantaged by that dual pricing. That in turn will put the IFA/broker out of business because he will have to charge a fee, where as the institution will be able to price its fees into the mortgage product.
At least when the small IFA /broker has been put out of business then almost 100% of complaints to FOS will be created by the banks!
God forbid that the FSA survive another year. Lesley get some common sence.
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Stuart Duncan | 11 Nov 2009 5:29 pm
Er, Lesley, lenders market these products because they make a mint from them (RBS, HBos etc) and because they can then put the blame on to whichever poor desperate broker had no choice, often because their network or employer forbids them to advise on direct deals.

This should have been addressed 18 months ago, rather than the oft-repeated limp script dreamed up by somebody in Canary Wharf.

The whole thing has been a disgrace from start to finish and is a badge of shame for all involved, especially the FSA.
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Evan Owen | 11 Nov 2009 5:32 pm
More than one "Phew" is called for! Don't like myths but where do they emanate from?

I would contend that referring clients to anybody else without the express permission of that client should be banned, even if it is within a group of companies as is often the case with banks, insurers, accountancy practices and law firms, TCF and all that, the DPA is a much abused piece of legislation thanks to all the little tick boxes on forms and online 'terms and conditions' which hardly anybody reads.
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Anonymous | 11 Nov 2009 5:34 pm
if the fsa forces the s/e to prove income it will effectively exclude millions from the mortgage market and effectively force them to stay with their existing lender, often at very uncompetitive rates. This will case much hardship and condemn millions of families to a life of hardship!
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Bill Wells | 11 Nov 2009 5:50 pm
Just because the FSA says it doesn't want the self-employed to be excluded by mortgage providers, doesn't mean that they won't be excluded.

The FSA and this useless government seem oblivious to the law of unintended consequences. They never think things through. When the government (or any of its quangos) steps in you can bet your life that they'll mess things up.

With all these new rules and general interference, they are still trying to pin the blame on someone else for their incompetence in not avoiding the worst economic crisis in 50 years. It wasn't a few iffy mortgages that caused the problem - it was the greed of bankers, politicians and City institutions (including the investment houses) that are to blame, with the FSA standing by and doing nothing.

It's a bit late to start re-arranging a few deck chairs !
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You must be joking | 11 Nov 2009 6:02 pm
I assume that the "powers that be" at the FSA have by now issued a memo to all staff who are currently (or may in the near future) applying for a mortgage along the lines of:

"Since the Tories announced that they may well do away with the FSA, you are, from this moment forward ,required to ensure that any application you make for credit contains the statement "I may be reundant within 2 years" alongside your statement of income. Anyone found not abiding by this requirement will be told off in no uncertain terms (but will of course not be sacked, accused of fraud or fines)"
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John Harding | 11 Nov 2009 6:32 pm
In the comments on mortgages for the self employed reported above Lesley Titcomb is being incredibly naive about the likely 'outcome' of the FSA's proposals. They like 'outcomes' at the regulator but don't understand unintended consequences.

When her bureaucrats have formalised these proposals and issued guidelines(?) and the management and underwriters at the lenders have digested these the result will be that the lenders will decide to err on the side of caution, they WILL ask for chapter and verse on applicants spending and this will include asking about just such examples as she mentioned, alcohol and cigarettes!

Come out into the real world Lesley.
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