Watchdog Warns About Self-Cert Mortgages
The FCA has released a warning about a self-certification mortgage provider that relocated to Prague in order to skirt around UK regulations that made banned such loans.
Self-cert mortgages, also known by the more pejorative name ëliar loans ', are aimed at the self-employed and allow borrowers to take them out without having to provide the same kind of proof of earnings as would be required by conventional mortgage providers. Instead, potential borrowers could simply ëself-certify ' their earnings, hence the name.
They were banned back in 2014 by the FCA and were widely criticised before after evidence came to light that many firms who offered them were letting people lie about the size of their income in order to borrow more money. The FCA took a strong stance against self-certification of earnings because of "the harm caused to consumers in the past."
The firm in question now, Selfcert.co.uk, opened for business last week in the Czech Republic but offer mortgages to customers in the UK. They are claiming that since they are now not UK based, they are "not subject to UK regulation" and can "decide who they lend to."
The company promise to offer loans of up to £500,000 to customers, with a blanket interest rates of Base Rate + 2%, and require a deposit of at least 15%.
However, since they only have around £50 million in capital to actually lend out, they are restricted to only being able to offer up to 300 mortgages. They have said that they will not be offering any loans to anyone inside the M25, due to "concern s about possible bubbles in the London property market."
Since they launched, they have received so inquiries from customers that they have had to temporary close down their site in order to allow them to cope with what they are describing as a "severe backlog."
They have said that their site will not be live again for "at least 3 months."
The FCA have warned that any customers who do take out loans with Selfcert, and indeed any similar non-UK based company are leaving themselves at risk by not being able to take advantage of any consumer protection schemes that exist in this country.
Being based in Prague, the company do not have to comply with UK regulations against self-certification and as such they are arguing that this allows their customers who do live in the UK more freedom when trying to borrow.
However, as the FCA said: "if you take out a mortgage offered from outside the UK under the ECD, you will lose important UK consumer protection benefits, such as the right to refer complaints to the UKs Financial Ombudsman Service and to be treated fairly when facing payment difficulties.
"If anything goes wrong," they went on, "the responsibility is with the otherÖstates authorities. Even if a regulated mortgage adviser in the UK recommends such a mortgage, you will not be able to get compensation from that adviser if it turns out you cannot afford the mortgage payments. This is because the adviser is not responsible for assessing affordability."