Self-employed face home loan ban

Borrowers who have recently become self- employed will find it almost impossible to get a new mortgage if the Financial Services Authority (FSA) confirms an expected ban on self-certification mortgages next week, brokers have warned.

“Self-cert” loans, which do not require borrowers to prove their income, have come under scrutiny as part of the regulator’s mortgage market review, due out on Monday. But, this week, mortgage lenders said they anticipated new rules to prevent further deals being offered. One person familiar with the review said: “Our expectation is that the FSA will require income verification across all mortgages in future.”

Brokers pointed out that up to 1m self-employed borrowers could be affected. “A lot of people will be denied the opportunity to get a mortgage if this goes ahead,” said Ray Boulger, senior technical manager at broker John Charcol.

He estimated that self-cert loans account for 5-10 per cent of the 10m residential mortgages outstanding, and could not be refinanced on similar terms once new rules were introduced.

Melanie Bien, director of Savills Private Finance, the independent mortgage broker, said: “Self-cert is set to be banned and buy-to-let could well be regulated. This is all very well if abolition and regulation are in the interests of the consumer but there is a danger that any fragile recovery in the market will be dashed by over-eager intervention.”

Self-cert loans reached the height of their popularity at the top of the housing market in 2007, when they accounted for 23 per cent of the 3,803 available mortgage deals, according to Moneyfacts. Now they are offered by only two lenders: Platform – part of Co-op/Britannia – and the smaller Beacon Home Loans. “Those who are self-employed may therefore have to delay applying for a mortgage until they can meet the criteria demanded by lenders offering mainstream loans, which is two years or more of accounts,” said Bien.