The FSA’s proposed ban on self-cert mortgages has brought protests from advisers.
Senior associate at specialist regulatory consultancy Bovill, Kate Robinson, fears that high-net-worth investors who are self-employed but asset-rich will find it a lot harder to get mortgages as a result of the ban.
She says: “This is one-size-fits-all regulation. If we are not careful, we are going to end up excluding both the vulnerable and the high-net-worth customer.”
It is not yet clear if lenders will take a customer’s assets into account when assessing affordability or whether it will be based purely on income.
Robinson believes assets must be included or people who can easily afford mortgages could be excluded from the market.
First Action Finance head of communications Jonathan Cornell says: “Underwritten and advised sensible self-cert has a place in the industry. It is treating employed borrowers on a short-term basis by only asking for three months’ worth of pay slips while self-employed people are being treated on a long-term basis by having to provide three years of audited accounts.”
Brentchase Financial Planning director Mike Fitzgerald says problems with self-cert mortgages only arose once they got mixed up with the sub-prime market.
He says: “The FSA has succumbed to the sentiment out there at the moment. The mess we are in has nothing to do with self-cert mortgages, it was to do with the toxic loans.”
Lenders will now be ultimately responsible for checking affordability, which raises practical issues as affordability criteria differs from one lender to another. This will increase the workload and complexity for brokers.
Cornell says mortgages will get increasingly complicated and he and Robinson agree that lenders and advisers should try to work out standardised afford- ability criteria.
Cornell says: “Assessing more individual circumstances will be complex. If you are starting to look at more complicated models, then it is going to get harder and harder and we may even end up going back to a system where underwriters are assessing affordability on a case- by-case basis.”
Advisers welcome the move by the FSA in its mortgage market review to register mortgage brokers as approved persons individually. Fitzgerald says he would have been happy to see the FSA go further on this.
He says: “I do not have a problem with the FSA making it really tight in terms of people being able to become regulated to give mortgage advice. There should be very deep checks done on brokers to make sure they are fit.”
Cornell says individually registering should help get rid of any “bad apples” although he believes it will be expensive to implement and operate.
Robinson adds that the regulator may be surprised by the “vast numbers” of individuals in the market.
There is a general sense of relief that the FSA has not called for a read-across from the retail distribution review for adviser- charging.
Robinson considers it is right that remuneration has been left alone for the time being but thinks the FSA will revisit it once the RDR has bedded in across the adviser industry.
Cornell says: “People have been used to not necessarily being forced to pay for mortgage advice. Pushing people towards paying for such advice would not have helped the industry.
“Obviously, there have been some firms that have abused commission but the FSA has decided that these incidents are in the minority.”
Fitzgerald says he has never understood the fuss about commission bias as the majority of brokers choose a mortgage based purely on suitability and not because one lender is offering 0.7 per cent commission instead of 0.3 per cent.
As to the FSA not introducing QCF level 4 as a minimum standard for all brokers, there are mixed views.
Cornell says he would like to see enhanced qualifications and feels the industry should raise minimum standards but other brokers agree with the regulator that the mortgage market is much simpler than the retail investment sector and does not require higher minimum standards.
One area still under review is whether buy-to-let and the second-charge mortgage market should be regulated.
Robinson says there is little harm in bringing the second-charge market under the FSA’s remit as it fits with the current mortgage model.
However, she believes it will be harder to regulate buy-to-let as it is a very different type of market.
She says: “You are purchasing for investment purposes as opposed to personal reasons. The assessment for suitability and affordability will be very different, so I think it will raise more issues than the second-charge loan market.”