Self-certification mortgages have been in the spotlight throughout the economic crisis due to the focus on specialist mortgages but fast-track lending – where high credit quality borrowers’ applications are pushed through more speedily without always requiring proof of income – has not grabbed as many of the headlines.
But with the FSA’s review of the mortgage conduct of business sourcebook due in September, there has been much speculation that mortgages with no proof of income could be banned. It can be argued that the self-employed should not have to provide proof of income but will the FSA find it as easy to justify prime borrowers being fast-tracked in the interests of lowering the administrative burden on lenders and advisers?
Speaking at the FSA’s mortgage conference in May, managing director of retail markets Jon Pain said that two years ago, 45 per cent of all mortgages were accepted without the lender checking the consumer’s stated income.
He said: “Much of this was fast-tracked business, although a substantial and increasing amount was self-certified lending.”
Pain went on to ask whether there should be more constraints on this type of lending. He said that in the run-up to M-Day, the industry argued against this and the FSA bowed to pressure.
But he added: “Since then, we have seen a significant increase in the amount of self-certified lending to employed customers for no perceptible reasons. With hindsight, this may have been a mistake.”
Many have seen this as evidence that self-cert will be culled. FSA chairman Lord Turner did not rule this out during his speech at the same conference.
An FSA spokesman says fast-track is an ongoing area of interest, and industry sources tell Money Marketing the regulator has been asking a lot of questions about the process involved.
Mortgageforce managing director Kevin Duffy says fast track was clearly abused in the past, but a resulting clampdown by lenders has made the process anything but fast.
He says: “It was once a process that allowed brokers to get hold of mortgages fast and have a fighting chance but not any more.”
Woolwich, Halifax, Abbey and Northern Rock still offer fast-track mortgages. A Northern Rock spokesperson says: “Fast track is available only to our highest quality residential customers, and eligibility is based on stringent criteria.”
London & Country mortgage adviser David Hollingworth believes fast track has a legitimate place in the market so long as it is used correctly by advisers and lenders.
“Fast track is not the same as self-cert but the lines have been blurred. Fast track has been a positive thing for lenders, advisers and borrowers.”
Alexander Hall chief operating officer Andy Pratt adds: “If fast track were to be scrapped, it would just mean more time and administration costs, which ultimately fall on the borrower.”
Similarly, brokers are firmly against any ban on self-cert mortgages.
Hollingworth says: “There would be a big gap in the market if self-cert were banned. We have to remember why self-cert came about. There was a real need for loans for the self-employed and those who could not prove their income. It has now become a byword for ‘liar loans’ and that is a shame.”
Smith says there is no need to ban self-cert: “If risk is priced accordingly, why do any mortgages have to be banned?”
Pratt argues that the FSA should clamp down on rogue applications rather than banning any types of product outright.