Banning the wrong things

Yes, I agree, wer certainly want different regulation of the financial markets….which doesn\’t necessarily mean more. Just different. But this isn\’t perhaps the right regulation:

The Financial Services Authority revealed plans to ban the practice last year as part of an effort to tighten up lending standards and \”help protect consumers from themselves\”. The regulator wants banks to ensure that borrowers do not overreach themselves when taking out a mortgage.

Banning self-certification and making income verification mandatory was one of the FSA\’s flagship proposals, but \”large lenders and large intermediary networks in particular disagreed\”, it emerged on Tuesday in industry feedback to the mortgage market review.

My own UK mortgage is a self cert….it\’s even a self cert buy to rent one. As such the size of the loan was determined by what the rental income could be, not my income. Thus a low value to loan ratio (something like 55% as I recall).

Why banning this would make the markets safer I\’m really not sure at all.

3 comments on “Banning the wrong things

  1. Most buy-to-let mortgages are assessed on the strength of the likely rental income. Broadly speaking, many lenders want to see rentals equal to 125% of the interest-only mortgage payment; others work on 120%, 110%, or 100% cover (getting more expensive as the cover decreases). A few BTLs are assessed on borrowers income if there’s doubt that the rental cover is there or if for some other reason the borrower wants it done that way.

    The ban on self-certification as referred to is for residential mortgages / remortgages.

    Wouldn’t things be so much simpler if borrowers were made responsible for over-borrowing, and for failing to insure their incomes / loan payments / health / lives, instead of the rest of us more risk-aware types having to bail them out?

  2. You lie on an application form about your income – this is fraud, pure and simple. It must certainly punishable under existing law, although I doubt there is very much such punishment going on.

  3. Normally I would agree. But the banks did self cert to get around FSA best practice. and then we bailed out the banks.

    Had we let the banks suffer the commercial consequences of giving £180,000 mortgages to people earning £20,000, then your view is appropriate.

    But given that I am now paying someone else’s motgage I would rather like a say in how much they can borrow.

    Of course, no sensible person would start from here, but choice only exists in a non-regulated market. And my original choice would be to let the stupid banks go bankrupt and the smart banks to mop up their assets.

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