FSAplanning self-cert ban
CITY regulator the Financial Services Authority (FSA) is expected to outlaw self-certification mortgages that don’t require borrowers to show proof of income.
The FSA is to end the multibillion-pound “self-cert” industry by bringing in a legal requirement that will force lenders to insist on proof of income before handing out loans.
The ban is expected to be a feature of the FSA’s mortgage market review, to be published early next week, which will usher in a series of reforms to the mortgage sector.
The self-cert ban comes after the products were blamed for worsening the bubble in the housing market that collapsed in 2007, one of the key triggers behind the financial crisis.
Experts have said the loans were being issued on a large scale to borrowers who were not able to keep up with repayments.
One lender that offered self-cert mortgages, Northern Rock, collapsed in 2007 and had to be nationalised by the government. And HBOS and Bradford & Bingley, which also had to be bailed out, were among the biggest self-cert lenders.
The mortgage review could also see new rules governing mortgages issued to buy-to-let landlords that borrow against a property they intend to rent out.
The FSA has been fighting to show it can reform the financial services sector, after it was accused of failing to prevent the financial crisis with overly lax regulation.
FSAchairman Lord Turner has pledged an end to the era of light-touch regulation, launching a series of reviews that are expected to recommend much tougher rules for the City.