Controversial self-cert launch sparks debate about MMR impact


Controversial self-certification lender’s launch has sparked debate about the impact regulation is having on the mortgage market. bypassed an FCA ban on self-cert mortgages by setting up in Prague and using the Electronic Commerce Directive to lend in the UK.

The firm is offering a tracker loan set at 2 per cent above base rate and will lend up to £500,000 at 85 per cent loan-to-value, with fees of around £600.

The website launched on Monday last week but by Friday it had ceased lending for three months, citing a “severe backlog” of consumer interest. The firm said 4,000 people registered an interest in applying for one of its mortgages within the first two days of the website going live.

Yesterday the FCA issued a warning to consumers about the risks of self-cert mortgages.

Self-cert mortgages, where borrowers do not have to prove their income, were at the heart of the financial crisis.

They were hugely popular in the UK in the early 2000s but were banned by the FSA in its Mortgage Market Review after borrowers were encouraged to lie about their income in order to obtain loans on more expensive properties.

However, brokers say self-cert should have a place in the UK but warn against any return to the slack lending of the past and so-called “liar loans”.

Regal Finance Group managing director Matthew Graves says: “You could argue there is a need for self-cert loans in certain areas but we need to work out how to monitor it. “You would need to build tight regulatory structures to make sure it fits the niche it’s going for.”

Mortgage Advice Bureau head of lending Brian Murphy says self-cert mortgages can work for borrowers and lenders are trying to cater for these consumers.

He says: “A number of lenders have tried to be more accommodating and adopt an individual underwriting approach, but they still need to evidence income.

“But self-cert is a tarnished brand. It may well be lenders develop tools in the longer term that allow them to be more comfortable in servicing debt with lesser levels of evidence around income, but I don’t think the regulator will allow self-cert as we formerly knew it to reappear.”

Murphy adds a critical point for consumers is the lack of rights they have when dealing with He says: “Where are the consumer rights and what protection, if any, does the consumer have?”

An FCA spokeswoman says: “A firm located in an EEA member state can provide a lending service under the Electronic Commerce Directive to UK consumers, but the service has to be provided solely at a distance and online.

“This service, however, would not be regulated by the FCA and if something went wrong, the FCA is not generally able to intervene. There would be no recourse to the compulsory  jurisdiction of the Financial Ombudsman Service.”