The Financial Services Authority have confirmed the end of the self-cert mortgage, confirming that self-employed individuals will be subject to an “affordability test” prior to being accepted for a mortgage.
The FSA said that everyone must be able to prove their ability to repay a mortgage. They conceded that those contractors and freelancers whose income can be irregular may “have to wait longer before applying for a mortgage.” They also confirmed that it will be the individual’s responsibility to “gather a track record of [their] income”. It is likely that each individual will be expected to prove their income over the previous three years.
The FSA pointed to the level of arrears amongst self-employed individuals and freelancers as the reason for the end of these non-income evidenced mortgages. The FSA director for the mortgage market, Lesley Titcomb: “While it is clear the mortgage market has worked well for many, we need to build a strong new framework to protect mortgage customers and to ensure that the problems we have seen in the past do not happen again, particularly as the mortgage market recovers.”
The new proposals are currently under consultation, with this period due to end in November. Other changes include self-employed individuals and contractors being restricted in their borrowing if they have a poor credit rating.
The FSA concluded: “While non-income verified mortgages were originally aimed at niche audiences, such as the self-employed or the lowest risk applicants, they gradually became more widely used…stringent criteria may have originally been applied to such applications, for example in terms of loan-to-values, these criteria were relaxed over time.”