David Winch
Bartfields Forensic Accountants Ltd
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Should self-certified mortgages be banned?

Should self-certified mortgages be banned?

The FSA is reported to be planning to require all mortgage lenders to obtain evidence of the income of persons applying for mortgages in future.

Apparently at present over 40% of new mortgages are advanced based on self-certified figures of income.

I have to say that amongst my 'clients' (normally individuals facing criminal charges) it is very common to see that they have obtained a mortgage based on income figures which are inconsistent with the income shown on their tax returns (if indeed they have made any tax returns).

Is self-certification almost an invitation to lie about your income?  Or is it a necessary option for dealing with genuine applicants with fluctuating income or unusual circumstances?




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14th Jul 2010 18:21

Mixed feelings

I have mixed feelings about this.

Yes, self certification makes it easy for someone to "massage" the facts to obtain a mortgage.

But, without self certification a huge number of people will be denied the opportunity to own their own home.

And of course, is an employee actually a better risk than someone self employed given high rates of redundancies?

Certainly there is a problem that needs addressing - but I don't think this is the answer.

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14th Jul 2010 18:35

Get rid of self certs and get rid of the cowboys who pushed them

It used to be the case that only the newly self-employed person would have trouble getting a mortgage, simply because they couldn't produce accounts. But that was just a fact of life that people got on with by working hard and earning the money to produce the financial results to evidence the cash and profits to justify a mortgage.

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14th Jul 2010 20:34


If a lender thinks they have plenty of security why not make it easy to borrow?

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15th Jul 2010 00:24

Halfway House

The problem with self-certification mortgages was that the figures could be entirely spurious. Whilst an employed person might still prove to be a bad risk they have at least provided some proof of income at the outset (unless they have faked payslips)

It has not been unusual in the past for providers of loan finance to seek confirmations from professionals so should that not apply to those in self-employment? Could a slightly more detailed arrangement apply for general mortgages. Some modification on confidential information might be required (to allow the professional to communicate reasonably informative details about self-employed income to lenders but it would prevent the self-employed being unable to obtain finance. It might even encourage clients to get their records in quicker if their mortgage application relies on the income for the previous tax year.

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15th Jul 2010 02:02

Two kitchens

I have a problem getting a mortgage because I have two kitchens - no problem with income or security.

Mortgage lenders seem to employ - along with most financial institutions - low quality staff to deal with the paperwork. My stepdaughter is in the process of getting a mortgage and they couldn't even fax documents to her. We'd checked the fax number they had and we were receiving other faxes but we didn't receive anything from them and they had to post them.

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15th Jul 2010 07:48

Banning not the answer - income multiples ?

We had to take several years company bank statements with us for a 'self cert' from C&G ... not unreasonable.

The 'standard' mortgage providers don't seem to have a clue when it comes to self-employment or small businesses, especially when some of the income is by way of dividend and depends on profits.

The thing that does need looking at (if it really exists) is that of mortgage based "income multiple" -  with the different tax bands this make a nonsense of the sums - it should, if anything, be related to post-tax income, or even a "statement of means" as per HMRC etc.

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15th Jul 2010 08:43

Only if common sense prevails

Self Certification mortgages should only be banned if some common sense underwriting can be put in place.

Example of "none common sense" - lady has a mortgage with a major lender and decides to move house so that she can reduce her mortgage (and her outgoings). New mortgage refused by same lender because her income wasn't sufficient. The underwriters couldn't (or wouldn't) accept the obvious fact that by denying her a new mortgage, she was likely to stay where she was.  By granting her a new mortgage they would significantly reduce the lender's risk. Answer was, of course, a self certification mortgage through a subsidiary of the same lender.

The world has changed from the days when someone worked for one company for years and could show a steady income. There is more short term contract working, more people are self employed or operating through a Ltd company - increased job mobility is forced on large sectors of the population. Earnings fluctuate. The old "income multiple" approach was never very satisfactory and is totally outdated.

"Previous earnings history is no guarantee of future income."


John Perry


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15th Jul 2010 09:47

Not the answer

It would penalise the type of enrepeneurial businessman with a finger in a number of pies who probably has a perfectly viable strategy for paying the mortagage -  maybe by relying on capital in leaner times - but cant show 3 yrs accounts with the "right" profits, or has income from a number of sources.

It is the very fact that employees of building societies (or the FSA for that matter) cannot understand this that makes them wage slaves in the first place.


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15th Jul 2010 10:03

As a basic step, must have evidence

There is an enormous difference between someone simply signing their name to a piece of paper and someone who has the evidence of a year's accounts to prove profit in addition to bank statements to evidence that they have the cash inflow to pay a mortgage.

A letter from an accountant or solicitor to "certify" income to justify a mortgage is open to abuse, and has been heavily abused by many .... including qualified accountants and solictors.

But at the end of the day, irrespective whether it is accounts, wage slips or P60, any document can be forged and the lenders must make checks and evidence those checks, also be regulated.

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