The Financial Services Authority have unveiled plans to ban self-certification mortgages which is sure to have a major impact on contractors who wish to buy houses. In recent years, when lending was at an all time high, both the employed and the self-employed were able to gain self-cert mortgages, meaning that no proof of income was required. Predictably this mean that many people were less than honest and subsequently fell into difficulty with their mortgage when the recession hit. This earned self-cert mortgages the unfortunate nickname ‘liar’s loans’.
The FSA commented: “The best way to deter individuals from applying for, and lenders from accepting applications is to require income verification in every case.”
On the subject of how this would affect contractors, the FSA stated: “We can think of no reason why the self-employed or contract workers would not be able to verify their income. An income flow that is ‘non-regular’ and fluctuating is not equivalent to, nor does it imply, one that is ‘non-verifiable’. Even income…received only once or twice a year should be capable of verification.”
The FSA is planning “further analysis” on how contractors would prove their income. It is thought they would be required to produce their tax returns or priced contracts. However, it is unlikely that an accountant’s certificate will provide sufficient proof on its own.
Backing up their planned reforms, the FSA said: “The FSA needs to ensure that firms only lend to people who can afford to pay the money back. The reforms the we have announced today will ensure that the mortgage market works better for consumers and that it is sustainable for firms.”
Contractor UK spoke to an IFA working primarily with self-employed who concluded: “Compulsory verification of a borrower’s income, which will effectively kill the self-cert mortgage market, …comes as no surprise.”