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FCA warns on self-cert mortgages

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The FCA is warning consumers of the risks of self certification mortgages after the launch of a new lender earlier this month.

The lender,, is based in Prague and is passporting into the UK using the Electronic Commerce Directive.

Self-cert mortgages – known frequently as ‘liar loans’ because they do not require borrowers to prove their income – are banned under the terms of the Mortgage Market Review. The default rates on such loans were far higher than loans where income was verified.

The regulator says: “Previously, when consumers took out a self-certified mortgage they self-certified that the income stated in their mortgage application was true.

“Because of the harm caused to consumers in the past, this is no longer permitted in the UK and firms must check a customer can afford a mortgage, including verifying their income in every case.

“From 21 March 2016, all firms offering mortgages in the UK (including EEA firms) will have to comply with the Mortgage Credit Directive, which requires a thorough affordability assessment based on information that has been verified by the lender.”

However, the Mortgage Credit Directive is less strict on rules around creditworthiness and income verification.

The directive merely states that the borrower’s income must be “appropriately verified, including through reference to independently verifiable documentation when necessary”, whereas the MMR explicitly states “a firm must not accept self-certification of income”.

The FCA warns consumers taking out a mortgage from a lender not based in the UK lose their consumer protection rights, including use of the Financial Ombudsman Service.

The regulator says: “Firms providing online services from an establishment in an EEA state other than the UK under the ECD have to comply with the law of that state, rather than with UK regulatory law. If anything goes wrong, the responsibility is with the other EEA state’s authorities.

“Even if a regulated mortgage adviser in the UK recommends such a mortgage, you will not be able to get compensation from that adviser if it turns out you cannot afford the mortgage payments. This is because the adviser is not responsible for assessing affordability.”

The regulator is recommending consumers take advice from a regulated adviser before making a mortgage decision.

The FCA says consumers still considering using a non-UK mortgage lender should ask what protection they have if things go wrong.

It adds buyers should ask to see the mortgage terms and conditions, regulator contact details and information about fees and charges.



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There are 8 comments at the moment, we would love to hear your opinion too.

  1. Just so we are clear the regulator imprisoned 20-30% of the market through regulatory interference in a market that was not broken. Its a bit rich asking those same people to be careful when all they want to do is to break out of the prison built by the regulator in the first place.

    I genuinely hope this is a watershed moment and a dawning of a new era of commercial judgement where a few lenders grow a pair and start to make commercial decisions based in the real world and not a theorising regulatory one !

    • That would certainly be novel Dick, however all lenders are sh*t scared of the regulator over what will happen down the line. So unfortunately the UK commercial judgement will continue to be stifled by the regulator.
      The various “Reviews” the Regulator has conducted in the passed (Retail and then Mortgage) have had more negative impact on the market and affected more people than anything they could possibly imagine but they just don’t or can’t see it. When the usual hit the fan with the public outcry over not having access to remortgage at no more than current borrowings the FCA accuse the lenders of going overboard in terms of affordability checks etc. They are an unfit for purpose organisation filled with numpties who don’t have a clue about what they are doing and when they screw up in a big enough manner, they move on to pastures new leaving a wake of devastation behind them. Disgusting, truly disgusting

  2. I applaud FCA for warning over this, though I fear it may simply stoke up consumer interest and potentially demand. Our market has moved a long way and I would hate to see a return to irresponsible lending of the past. If post 21 March 2016 a firm passports into the UK and meets MCD, but not FCA Rules an uneven playing field will have been created.

    If a firm operating cross border from say Czechoslovakia purports to be MCD complaint, then either their Home State regulator is not policing them effectively, or their competitive advantage is derived from gold plating of actual MCD Rules in the UK.

    I fear that this particular issue is going to rumble on and on and hope that disruptors are not provided a competitive advantage and easy route into the UK. Just as importantly I would hate to see loopholes and passporting used to help a return to some of the past irresponsible lending ways that FCA rightly stopped through MMR.

  3. This is an interesting comment : “Even if a regulated mortgage adviser in the UK recommends such a mortgage, you will not be able to get compensation from that adviser if it turns out you cannot afford the mortgage payments. This is because the adviser is not responsible for assessing affordability.”

    Why then is it the responsibility of ‘all financial advisers’ to bail out the clients of those who have recommended non-regulated products in the investment arena? Surely the same warnings should be made to consumers regarding non-regulated investments. No protection is there for you – do it at your own risk! It doesn’t matter that the adviser is regulated in the UK.

    My work here is done. Well now that that’s sorted out I can focus my attention on the Syrian crisis.

    • Good point John, why no protection for unregulated in the UK SELF cert mortgage products, but protection for unregulated in the UK (we pick up the bill thru FSCS) for the crude that people put in to their SELF invested PP (SIPP)
      Come on MM ask Mark Neale at the FSCS to explain that one please? Or is it he can’t as the F-pack make it up as they go along based on the way the politicians are blowing that month/year

  4. I attended an MMR event at Canary Wharf where this myth that self-cert produces higher arrears was being propounded.

    The propounder showed the assembled great and good of the industry a graph which ‘proved’ his assertion. Unfortunately the graph did not state ‘self-cert’ it stated ‘non-conforming’, which every adviser – but not the regulator – knows includes credit-impaired loans.

    The regulator regularly trots out the mantra that how lenders sort out their affairs and structures is ‘commercial judgement’. Deciding whether to offer a self-certification mortgage is also commercial judgement and the regulator has no business interfering.

  5. Here Here, I have a self cert it was the only way to stop being discriminated against as a self employed person with everything based around Net profit not actual income possibility. I have had it for 11 years no defaults EVER yet am now held prisoner due to FCA ruling by santander on 5% rate. Ombudsman reckons its legal leverage in a vulnerable market! So blackmail is approved in the system. These new guys can only go up from these morals!

  6. self cert mortgages create free enterprise and help the housing market,lets look at the scenarios;

    if you have a self cert mortgage product at max 75% Loan to Value then its bullit proof! allow me to explain;

    1. Mortgagor maintains the mortgage payments – no problem
    2. Mortgagor defaults and the house is repossessed and sold on open market, lender recoups Principal, interest and fees (may even be monies left for the defaultor!!!)

    wheres the problem? there isn’t one

    lets rid ourselves of the FCA bureaucrats who are essentially unempoyable and contribute nothing to economics and prosperity!!!). lets make the mortgage market great again!

    The Doctor

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