Personal Loan Store Logo
UK Loan Comparisons

Brokers Have Pushed Self-cert Mortgages

Homebuyers have been encouraged by unscrupulous brokers to lie about their salary and finances so that they can qualify for mortgages way above what they can really afford. Such practices, experts warn, could drag Britain down into a sub-prime crisis the like of which the US is experiencing and is having knock-on effects for finances all around the globe.

Some brokers have been encouraging first-time buyers to opt for ‘self-cert’ mortgages, as well as families with low incomes and people with poor credit histories, as a way to get into the housing market. Self-cert mortgage enable people to put their income down without having any checks by an employer as to how much it really is. There is mounting evidence that some brokers are encouraging people to put down higher figures than the truth to get a bigger mortgage. The practice, say critics, is common among brokers striving to reach sales targets and paid on commission.

One broker said: “If you go to a client that has a low income, if you can get them to go down the self-cert route, you can declare any income you like and it is easy to get the deal passed. That's what they use it for, they abuse it because they want to pass as many as they can.”

Former money expert at Which? and adviser on financial inclusion, Mick McAteer, said: “This has all the elements of a classic reckless lending scandal. All the ingredients are there. There is a feeding frenzy. We're seeing fierce competition because lenders and financial services companies are killing themselves to get market share. To cap it all, we have very weak regulation at a time when possibly millions of people are vulnerable to interest rate rises and may have been mis-sold mortgages.”

The Financial Services Authority (FSA) has been urged to take action against firms in the wrong. Only four years ago self-cert mortgages amounted to 5% of all mortgages; now it is more like 10%.

Sub-prime mortgages come with higher interest rates, and currently the highest known is 11.5% - double the Bank of England’s base rate. People over-reaching themselves and then paying high interest rates will only find themselves on the road to ruin. There has already been an increase in home repossessions of 30% in 2007.

The feeling is that house price inflation has actually been stoked by these type of mortgages, with people taking out loans they cannot really afford. House values in the country have continually been said to be overvalued and this could be one reason that prices continue to rise beyond affordability.

The FSA is said to be ‘very concerned’ about some deals. Some weeks ago it took action against five brokers who were not making the proper checks on customers’ finances. The FSA also notes that people with self-cert mortgages have higher arrears.

Northern Rock has been in crisis as it couldn’t afford to finance its own mortgages; it is one bank that has aggressively pursued mortgage deals of many types. Both Bank of England Governor Mervyn King and Chancellor Alistair Darling have urged institutions to lend more responsibly.

Tom Smith
29th September 2007

Recent News:

  • Hopes For a Soft House Price Fall [29.09.07]
    Despite some bad signs for the property market, experts are still forecasting a soft landing and not a crash. Housing prices have started to fall, mortgage rates are drifting up despite a stable base rate at the moment, and consumer confidence has been hit by the Northern Rock crisis, but a crash can still be avoided.
  • Is a tracker mortgage the right option? [28.09.07]
    It seems that there may be some better news ahead for borrowers at last. Lenders fund their mortgages from the money markets, and here rates have been dropped and economists believe that the base rate should only go up another quarter of a point to peak at 6% later this year.
  • Northern Rock About To Call On The Money [27.09.07]
    It was only a week ago that Northern Rock got the nod from the Bank of England (BoE) that the latter would act as lender of last resort to the bank. Now it looks like Northern Rock will actually have to call on the emergency money in the next few days.
  • US Federal Reserve Cuts Interest Rate [27.09.07]
    It is unlikely that the interest rate in the United States have ever been watched so closely the world over as it was on Tuesday 18 September.
  • What Will Happen To Northern Rock Mortgages? [25.09.07]
    Savers have camped overnight and queued round street corners to get their money out of Northern Rock, but how will the chaos in UK banking affect mortgage borrowers?
  • Many Borrowers Stuck on Standard Variable Rates [20.09.07]
    Many homeowners who are coming to the end of their mortgage terms are stuck on high interest standard variable rates (SVRs). They could end up paying well over the odds unless they take action to get off that expensive rate.
  • Northern Rock: Any Bidders? [28.09.07]
    With the Northern Rock crisis having prompted huge numbers of savers to join queues and camp overnight in some cases just to withdraw their money from the problematical bank, Chancellor of the Exchequer Alistair Darling was forced to take action.
  • Northern Rock’s Consequences [25.09.07]
    The crisis which has engulfed Northern Rock, Britain’s fifth largest mortgage provider, is a real shock to the system for those industry watchers who thought that the credit squeeze wouldn’t impact ordinary people.


Early Redemption Penalties - Loan Extras - Debt Consolidation Bad Credit - Choosing a Personal Loan - Loan Penalties - Money Saving Loan Tips - Loan Reviews
Site Map - About Us