Self-Certification Mortgages

This type of mortgage when it was originally made available to borrowers, worked well. It is known in the mortgage industry as, “self-cert” lending. It accommodated borrowers who were self employed and needed to certify their own income as they did not always have accountants or other means of showing projected earnings, or proving their income. An early specialist lender in self certification mortgages was The Mortgage Business (TMB) who became part of the Halifax Bank of Scotland (HBOS) group.

TMB originally targeted the self employed offering a maximum loan to value (LTV) of 75%.  This product was made available from ‘mortgage packagers’. 

TMB increased its lending in the early 1990’s from £100m per annum to £1b per month in 2007; they became a champion for mortgage packagers offering a comprehensive range of products.  Brokers were also able to access TMB’s range direct from the lender on behalf of their clients.

When self certification of income became available to employed applicants it soon became clear that the facility was being abused.  Again some greedy lenders became reckless in their drive for market share. The product also became available to people with adverse credit, and for buy to let mortgages. It must be remembered that it is an offense to give false information on a mortgage application form. However, it is also the responsibility of the lender to ensure the applicant can afford their mortgage repayments. 

Some called these loans “liar mortgages”. The BBC’s Money Programme started investigating mortgages in 2003.

Months of undercover work filming, the programme "Mortgage Madness" answered what was called “one of the great puzzles of the British housing boom”. This was how some borrowers were managing to meet the rising cost in house prices.

Specialist lenders had accommodated their lending policy to allow borrowers to get far bigger mortgages than they were would qualify for on a full status mortgage application. It was summed as “all a borrower has to do is to lie about how much they earn”.

When a survey was conducted in Ealing, London, 9 out of 10 brokers who were asked for mortgage advice recommended that lies should be told about applicant’s salary, increasing it from £30,000 to £50,000 on the mortgage application form. This increased the amount of loan size offered by up to 75% more. This took into account the income multiples applied in the ‘self cert’ criteria.

When the Mortgage Market Review was announced by the Financial Services Authority (FSA), self certification mortgages were the first to be targeted with a ban. Since 2007 there has been a rapid withdrawal from the market of funding available for this product.

Self certification should not be confused with Fast-track mortgages. These usually require no income verification and were normally below 75% LTV. The FSA found that during the peak of the market 2006-2007, approximately 45% of all mortgages were on a ‘no income verification’ bases. This caused great concern and drew attention to the reckless lending that had taken place.