In a bid to prevent a repeat of the disastrous debt management issues that the financial world has had to cope with recently, the Financial Services Authority (FSA) is set to eliminate self-certification mortgages.
The loans which have been branded controversial, as they allow mortgages to be granted without the proof of income, look set to be outlawed as recommended in a discussion paper by the FSA.
This means that all borrowers wishing to secure a mortgage will be required to provide evidence of their income before the loan is granted, eliminating the increased risk of financial over-stretching and subsequent development of debt management problems.
“Self-cert” mortgages were originally introduced to enable those with less stable or irregular careers, such as the self-employed or freelance workers, to get on the housing ladder. However many people used these as a way of inflating their salaries to secure a larger mortgage during the property boom, and are now experiencing serious debt problems as they are unable to maintain their payments.
The financial watchdog believes that by insisting on checking a person’s ability to repay what they borrow, through proof of income, it will help move away from some of the more recent irresponsible lending practices.
Ivan Cooper, Chairman at debt advice specialists Chiltern, said: “The move by the FSA will no doubt start a debate as to whether people like the self-employed are prevented from owning a property.
“However, by ensuring that people have the ability to repay what they owe they will reduce the chance of people getting into financial difficulty by borrowing more than they can afford.
“In recent years lenders have been eager to give out money, but the financial crisis has taught them that if their customers have debt management problems, they will have debt problems too.”
