Jan/100
Watchdog acts on mortgage mis-selling
The Financial Services Authority has cracked down on a number of unscrupulous mortgage brokers after it uncovered “serious failings” in the advice they were giving to borrowers.
Seventeen brokers face legal action, four have been suspended and a further 65 must conduct costly reviews after the City watchdog found that advisers were arranging self-certification mortgages despite doubts over the accuracy of borrowers’ details.
Six of the seven that were referred immediately to the FSA’s enforcement division were censured for mis-selling self-certified loans, while another was condemned for granting “unaffordable” mortgages to customers.
Self-certification loans, most commonly sold to the self-employed, do not require proof of income. Brokers have been criticised for misusing the rules to boost the amount customers can borrow, particularly as house prices rise.
Some brokers are understood to have sold more costly self-certification loans to borrowers who are not self-employed to enable them to buy more expensive properties.
The FSA’s move comes as borrowers in the UK are becoming increasingly overstretched. Many thousands of sub-prime borrowers are facing repossession as borrowing rates rise and lending criteria are tightened.
The FSA revealed last week that it had fined two brokers and shut one down for mis-selling sub-prime deals. It said that there was “some cross-over” between self-certification and sub-prime loans because self-certification deals often help self-employed borrowers with chequered credit histories to obtain a mortgage.
Melanie Bien, director at Savills Private Finance, the mortgage broker, said: “The sale of self-cert mortgages has come in for criticism recently but, done properly, it can help clients with income streams that are not easily verifiable. The biggest potential pitfall is the risk of brokers encouraging clients to overstate their earnings to achieve the loan amount required – this is potential fraud.”
Lenders that specialise in self-certification, including Platform, Britannia Building Society’s specialist arm, and BM Solutions, owned by HBOS, have been scaling back their self-certification ranges in the wake of the credit crunch. As with sub-prime deals, self-certification is seen as riskier than traditional lending. At the start of the year, self-employed borrowers could find a deal for up to 95 per cent of the value of their property. The limit has since fallen to 90 per cent. Interest rates are also higher than standard to cover the extra risk.
Stephen Bland, of the Financial Services Authority, said: “There is still an unacceptable number of firms unwilling to change and they are damaging the rest of the industry”.
“We found some willing to offer mortgages they know to be unaffordable and to accept self-cert business even when they had concerns that the financial information provided by the customer was implausible. These practices are completely inconsistent with treating customers fairly.”
However, the Council of Mortgage Lenders (CML) criticised the FSA for being unclear and ambiguous about its expectations of brokers.
Michael Coogan, director-general of the CML, said: “These findings are a wake-up call to those brokers who are behind the pace. The FSA also needs to make sure that it sets out its expectations clearly and unambiguously, which does not always happen.”
The FSA investigated 345 brokers during the inquiry and it will start another six-month review of mortgage advice in January.
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