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Alan Lakey: Pedants still outflank common sense


A friend of mine recently penned a column for a rival magazine in which he posited that common sense is returning to the mortgage world.

I sincerely hope he has spotted something I have missed because I continue to find nonsensical rules being applied rigidly and irritating pedantry being mandated with as much, or possibly more, regularity as ever.

Nationwide, which is better than most, recently requested a bank statement to prove that my client’s salary was being credited. Upon receipt, it phoned to advise that a certified copy was unacceptable as the statement only ran from the 3rd to the 31st of the month. 

I pointed out that the salary credit on the 28th was quite obvious and visible but it seems some bright fellow has contrived a new rule that a bank statement is acceptable only if it covers the full month. A total waste of both my time and that of my client.

Similarly, at Santander they accept tax credit income and understandably insist on seeing the latest advice statement. However, they also insist on seeing every page of the statement even though the final two pages are always blank.

Consider also the short-sightedness of lenders which refuse to use PAYE income from a 20 per cent director if his company has made a loss. The same individual operating as a sole trader or within a partnership would not be mistreated in this way.

Off the record, lenders inform me that the MMR is the prime mover behind this introduction of nonsense and meaningless sophistry. In their attempts to be seen as whiter than white, lenders are happy to refuse 20 excellent cases as long as they avoid a bad one.

Back when the MMR was merely a gleam in a pedant’s eye, I attended an FSA roadshow which was intended to inform MMR policy. 

I was seated at Canary Wharf among the great and the good and, with the rest of the attendees, commanded to advise what income proofs should be required of the self-employed.

After 10 minutes of the usual responses, I asked a different question: should there always be a need for proof? In fact, is there still a place for sensible self-certification of income? 

This provoked astonish-ment from the FSA chap and, determined to show me my error, he projected a slide which, he explained, highlighted the massive dis-parity between standard lending arrears and those of self-cert. 

His graphic revealed two lines – one relatively level and the other rising steadily. He stated that the latter showed self-certification arrears and felt that it adequately made his case. 

I might have been a believer had the graphic not clearly stated that the rising line was “non-conforming”.

It seems he believed non-conforming to be synonymous with self-cert. Of course, I could be wrong, but the alternative theory of mendacity is far less appealing.

So, while I hope my friend is right and green shoots of reasonableness and logic are indeed bursting through, I fear that before things really get better, we are in for yet more rigidity of thought and unthinking obedience to pointless rules.

Alan Lakey is partner at Highclere Financial Services


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There are 25 comments at the moment, we would love to hear your opinion too.

  1. I couldn’t agree more Alan.
    After 30 years of trying to understand how the mind of an underwriter works, and working to those strengths in order to streamline business, I am giving serious consideration to suspending mortgage work entirely.
    It’s not just a case of ‘computer says no’, but far more insidious is the lack of cooperation (or possibly the lack of ability to influence anything) by the BDMs that is puzzling.
    They ask you to introduce, then make you jump through so many rings, providing so many levels of proof, that it becomes economically unrewarding.
    I don’t know where the MMR will take us, but for me to continue to operate in a market where your ‘business partners’ are so demanding, inflexible and uncooperative is rapidly stopping being an option.

  2. Nationwide recently wanted proof of receipt of child benefit. The couple produced their letter from 2012 after the child’s birth – no other letters have been received as there’s been no increase since – letter rejected as too old.

    They went to their bank to get a print out of their statement showing the credit of the child benefit. We sent that in, not acceptable the bank hadn’t stamped and certified the statement they’d provided.

    At this point I gave up and said given affordability was not an issue and the child benefit wasn’t needed could we just remove it all together.

    Yes – job done, they’ve removed that income from the case even though it exists in reality but not enough ‘reality’ for them to believe it.

  3. Not again, Groundhog Day. Its their money, they can ask the client for whatever they want.

    Mortgage advisers took the Micky for 10 years and got away with it.

    I meet many brokers, same old story.

  4. Incompetent regulators 2nd August 2013 at 10:02 am

    Using the 20% director analogy whereby a company’s keys a loss but the employees has proper earnings. Then the likes of RBS staff shouldn’t also be able to obtain their own mortgages until the company is in profits!

  5. One has to agree with Richard Bishop. Indeed Mortgage Brokers (worldwide) have to share much of the culpability for the present parlous state of the Economy and the awful private debt position in the UK.

    I too attended the Roadshow.

    Firstly consider IFA’s who have prepared for the RDR regime. Also bear in mind that a member of the public can go to a mortgage adviser who only needs to be qualified to Level 3 and have regulations that are more of stepping stone than a hurdle. The customer can (for example) take on a debt for £300,000 over a period of 25 years, with additional initial costs such as stamp duty, solicitor’s fees, surveyor’s fees, lenders fees etc. This for probably his largest single asset.

    Compare this to what is required from an IFA when advising on what is by comparison a footling ISA for £11,520.

    There is no such thing as independent or restricted in the mortgage market. Indeed at the meeting it was stated that the aim of the MMR was to have a flexible market better suited for consumers. The previous lax mortgage market carries no little blame for our present parlous economic state.

    Affordability is now at last to the forefront, but here again the adviser has the get out because the ultimate responsibility for affordability lies with the lender and not with the adviser. Adviser firms must assess that the customer meets the lender’s criteria and that the advice is appropriate. When asked whether these rules also apply to the mortgage add-ons such as life assurance, household cover etc, we were told that this is a different department. Is this buck passing? What about having a homogenous regime!

    Much is made of execution only (as also for investment advisers) and it will be interesting to see how an adviser can prove that the client wasn’t led and therefore advice was not given. Amazingly it was stated that under the new rules firms must now act in the best interest of customers. Blow me! Does that mean that they had no such duty previously? What happened to TCF? Moreover advisers don’t even have to consider the best deal if this is not available to them. The only obligation is to offer the best deal for those products that are available and no mention need be made that sometimes going directly to the lender might well be a far better deal. (How is this TCF?)

    For those IFAs that comply with record keeping requirements, it will come as somewhat of a shock to learn that the requirement for record keeping for mortgages is only 3 years. Bearing in mind that most loans are for 25 years I find this absolutely amazing. Disclosure is only verbal and of course you will remember Sam Goldwin’s definition that a verbal contract isn’t worth the paper it is printed on! There is no written IDD after April 2014.

    I was left wondering whether the FSA had been busy reinventing the wheel. As one who was previously regulated by the MCCB it seemed to me that the old regime was far more robust than that which currently exists and for what is proposed. Many still produce mortgage reports for clients running to about 9 or 10 pages. When this was mentioned (IFAs prepare to be Gobsmacked!), the response was (and I quote) “we don’t want to inundate the customers’ with too much paperwork as we know they don’t read it anyway”. If the mortgage people recognise this why don’t the people that regulate our investments and pensions also recognise it, or is that not a question I ought to be asking?

    There are good points in the MMR. They have tightened up on interest only loans – not before time. But with typical regulatory double think, they have the brass neck to state that the FSA doesn’t want to make things worse. Why? Because their masters at the Treasury rely on people getting into debt as deeply as possible in order to keep the economy afloat.

    Of course in my view and no doubt to Alan’s chagrin I applaud the fact that self – cert has been outlawed. I am dumbfounded that Alan finds fault with this. It was perhaps one of the biggest calumnies in the whole of this sector. A licence for dishonesty and imprudent lending. If you can afford a mortgage I just can’t see how you are unable to prove it. Accountants, bank statements, tax returns, Portfolio Valuations – all are acceptable. If you mean that you are referring to future income or suchlike – well ‘a bird in the hand’ springs to mind!

    In concluding they were very concerned to ensure that there was readiness and implementation of these new rules in time for April 2014, but seeing how weak these rules are I fail to understand how intermediaries presently involved in the mortgage market are not only ready but have systems and controls in excess of these requirements. If not it rather points to a wild west in the mortgage markets.

    That lenders have to shape up is of course a given. There are other aspects in which some advisers get involved, such as niche markets, sub-prime and all such detritus. It doesn’t seem to be generally recognised that a mortgage is a debt and if you are in a hole it is best to stop digging. I cannot see IFA’s having too much difficulty jumping these hurdles, but I still fail to understand why Mortgage Advisers get an easier ride.

  6. I don’t think you’ll be surprised that I disagree with you Alan, the verification of incomes and making sure that lenders are checking information is not only going to provide a calming influence on the housing market in respects to prices it will also have long-term benefits to affordability of houses.

    You mention self certification well as far as I’m concerned these types of mortgages should have never been allowed in the first place as surely in the extreme these mortgages were effectively assisting the individual to commit tax fraud. After all how can you have somebody declaring an income of say £20,000 per annum been able to afford a £400,000 mortgage simply because they have a 25% deposit.

    Who controls house prices is a question that is being asked within financial services probably since the Second World War. Many would say that house prices are controlled by market forces simple supply and demand, when others will argue that control of house prices is down to lenders. The more available credit is the higher house prices go!

    If you look at Halifax for example per 2008 one of the directors admitted that the company was only carrying out 10% checks on all mortgage applications is it no wonder that the company almost became bankrupt.

    It is important for companies check mortgage applications for potential mortgage fraud and days of the broker assisting a client to get a higher mortgage by not verifying their income correctly is thankfully gone forever.

    If you don’t like the new rules don’t do mortgages is my simple answer to you as they are there to protect not only the institutions but also the individuals taking out a mortgage over committing on their finances.

    What UK needs is a stable housing market and more importantly more houses being built!

  7. A round of applause for Harry Katz.

    Bang on the money and completely eclipses the original article.

  8. mick | 2 Aug 2013 11:09 am

    A round of applause for Harry Katz.

    Bang on the money and completely eclipses the original article.

    Harry makes some good points but I have to disagree with you about his post eclipsing the original article. There is a degree of silliness now that has gone way past what is needed to establish affordability and ability to pay, and Alan’s point about bank statements is correct. I have actually been asked by lenders to produce 12 months bank statements in the past. How is this reasonable? Then there are the lenders who want all of their customers to use online banking but won’t accept verified online bank statements and will only accept original statements. Go figure? I could go on and on about the things that drive you barmy with mortgages and if it was too far one way in the past it’s gone way too far the other way now.
    Alan is right; common sense has gone flying out of the window and lenders refusing 20 mortgages to avoid the 1 bad one should have better underwriting systems in place and actually communicate with brokers and IFA’s about how to get this right. Who on here has had any dialogue with a lender about how to improve their systems? Though not.
    They can’t even get their online application systems to mirror the information requested on their data capture forms. That would be a good start as far as I’m concerned.
    I get more stress and aggravation from mortgages and do actually wonder why we bother, but in these difficult times you can’t cut off your nose to spite your face

  9. Would totally agree with Harry Katz – time to retire Alan if that is you real viewpoint.

  10. Apart from the fact that Harry’s blathering’s were nothing to do with the tenet of the article

  11. Applause, applause applause. Agree with Harry completely.

    One day we will read an article from Alan that isn’t ‘no one lets me do what i want anymore’ dressed up as an article berating the administration of which ever company has made him do some work.

  12. I think a few have missed the point here. Alan stated that the information given by FSA in defence of their position was the fact that self cert/fastrack generally carried a greater arrears risk than non self cert but the evidence used was that of NON CONFORMING self cert (subprime) and not prime. The point being that fastrack/prime self cert carries no more arrears risk than non fastrack/self cert (as detailed by most mainstream lenders).

    If indeed all matters relating to what and how lenders conduct themselves in a commercial world (I’m all for lenders making commercial decisions without interference from a third party regulator) why prey do they have to abide by the TCF and MCOB (particularly MCOB 11.8.1E) principles which actually fly in the face of commercial considerations in many cases anyway.

    Indeed I would go as far as saying that without regulatory interference the mortgage market would look consdierably different and if the market dictated that interestonly was required that is precisely what would be on offer – thats the benefit of markets and commercial decision making by those that are actually making those decisons in accordance with market forces and not artificial interference from third parties.

  13. 50% of the general public according to MAS this morning but having considerable problems paying their bills. Interest rates are at an all time low but still 50% of the general public struggling to pay bills.

    Can you imagine what the carnage would be if BOE interest rates rose by even one percentage.

    So I really don’t understand the logic of relaxing income verification rules if we had these in place in 1997 we wouldn’t be in the mess we are now.

  14. @Peter Heard

    UK mortgage ending did not precipitate the current crisis.

    If you believe this then you probably shouldn’t be practising.

  15. Peter Herd | 2 Aug 2013 12:06 pm

    Can you imagine what the carnage would be if BOE interest rates rose by even one percentage.

    I agree there would be utter carnage but I’m sure the pensioners who have saved all their lives and now enjoy a pittance return from their savings wouldn’t agree with us.
    The fact costs are going up and up and pay is either being held at zero or way below the rate of inflation might also have something to do with it for public sector workers? These would be the same workers who have seen their pay decrease because of increased pension payments.
    Having to pay a tax on an empty room when you’ve lived there all your life and there are no smaller houses for you to move to will also be having an impact on a certain sector of our society.
    The list is very long and interest rates for mortgage holders is only part of the problem.

  16. Reading the posts it would appear that (not unusually) the word is divided between adopters and resisters. It seems glaringly obvious that Derek Glair wishes to be more precise – pedantic even. Perhaps a fair point.

    OK whether Mortgage Broker or IFA, we deal with client’s money. When dealing with money doesn’t it behove us to be pedantic? Too much laxity in money matters leads to all sorts of problems – as we all know only too well. I see nothing wrong in providing one (or even two) years’ worth of bank statements. Foreshortened statements can conceal all sorts of chicanery.

    Basically I wonder how pedantic contributors would choose to be if they were lending their own money? I know that if it was me I would make the banks and building societies look an easy touch!

  17. Harry Katz | 2 Aug 2013 2:01 pm

    I thought you were being sensible until your last post. Banks and building societies are there to lend whereas I’m not. Having asked for P60’s, payslips, bank statements, employers references or accounts, then carrying out credit checks and valuations on the property they’re being asked to lend against I think it’s safe to say they don’t really need 2 years bank statements. Do they?
    As they have first charge against the property in the event of problems anyway and most of the law on their side is it just a case of them being pedantic because of the paranoia created by the regulator?

  18. Bank statements illustrate expenditure as well. Repos are not ideal. Better to be sure at outset. Too many take on debt they can’t really afford. That probably encompasses the great majority.

    As fewer get mortgages in theory house prices should decrease, but with the new scheme from this daft Govt the opposite will take place and in the South East too many rich foreigners hike up the prices. We could do with at least a 20% if not30% drop in prices.

  19. Nanny State gone overboard 2nd August 2013 at 5:08 pm

    As a mere consumer on this subject, I frankly do NOT understand what business it is of government to come between me and a willing lender, in order to stop a sensible transaction taking place that might be good business for both sides. My wife, a Chtrd Acct, is on a short career break to look after young children, following which she will go back to work. We will then be able to clear any debts we may have chosen to accrue in the meantime, so why cant we take out an interest only loan, borrow what we feel is comfortable for US long term, and be able to act like independent adults.
    Is it because the utterly unimaginative Govt and regulator cant see any other solution other than to legislate for all based on the most stupid and irresponsible in society?

  20. Nanny State gone overboard | 2 Aug 2013 5:08 pm

    Is it because the utterly unimaginative Govt and regulator can’t see any other solution other than to legislate for all based on the most stupid and irresponsible in society?

    In a word; yes! Bear in mind this is the same regulator (just a different name) who has marginalised many from affording advice in the future.
    Those people who added credit card debt to a 20 or 25 year mortgage, or took out more than they needed so they could buy a new car were sucked into this expecting property prices to continue to grow. The lenders themselves were throwing money at anybody who wanted it. It wasn’t rocket science to see this was utter folly but where was the regulator at the time? When Northern Rock was marketing 125% mortgages who in the world of Sir Hector thought hang on; what is happening here? No one, that’s who and the present nonsense you describe, has come about because idiots were definitely in charge.

  21. Apologies – correction – decimal points missing from

  22. You know, I think thaw lenders are a bit anal in their requirements but they have been like that on an ever tightening basis but here’s the rub, I have evolved with their requirements and supply them what they need. As a result, no additional requests for further information, the mortgage underwritten and lender & client happy. No problems. Forget this and look at unfair things that really affect us.

  23. Peter Herd is correct inasmuch as he is forging a career out of disagreeing with me.

    The point of the article, which really shouldn’t be beyond him or dear old Harry is that there is a line where common sense passes into inanity and then stupidity.

    Many of the lending guidelines are sound and I am not advocating a free for all however we need to remember that this is the risk business and lenders should make informed judgements based on common sense rather than follow the narrow dictates of computer programs and compliance departments that hinder as much as help.

    This is not a perfect world and it will never be one but if by shaking the tree I can make some monkeys fall to the floor then so much better.

  24. Look I sympathise with the general tenet. Bureaucrats are the bane of anyone’s life. But sometimes it is better to stop banging your head against the wall. There are many instances – both in and outside Financial Services where the requirements are just plain daft. But if you want to preserve the head on your hair (too late for both of us Alan) you may as well just acquaint yourself with what is required and give it to the numpties. Much more relaxing that way – no?

    (Oh and Alan – less of the OLD please – even if it is apposite!)

  25. Harry Katz | 5 Aug 2013 12:47 pm

    “Look I sympathise with the general tenet. Bureaucrats are the bane of anyone’s life. But sometimes it is better to stop banging your head against the wall. There are many instances – both in and outside Financial Services where the requirements are just plain daft. But if you want to preserve the head on your hair (too late for both of us Alan) you may as well just acquaint yourself with what is required and give it to the numpties. Much more relaxing that way – no?”

    Harry it sounds like they’ve beaten you into submission. I might have to live with the ever increasing stupidity but at every opportunity I can get I’m making my feelings known and complaining wherever I can. If all we do is lie down and accept any old stink that they send our way we might as well give it up now and seek pastures new. We have to keep letting providers, lenders, MP’s, Networks et al know they’re strangling the whole shooting match and it’s time some common sense came back into the equation. I’m not stupid enough to realise this is unlikely to happen in my lifetime but I’m not going to stop challenging stupid decisions made by people who haven’t a clue, to get a better outcome for my clients. They like that word ‘outcome’ these days don’t they?

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