One of the world's biggest finance companies has pulled its self certification mortgage range from the market with immediate effect. The huge lender has their fingers in many different financial pies all around the world which means their UK self-cert loan book is tiny in the grand scheme of things.
However the financier has pulled the product from the market citing the turmoil in the global financial markets as the trigger. To cease this line of business despite its minute status on their overall lending operations suggests that they consider the high probability of self-certification mortgages going bad as a serious issue.
The removal of such products from the market is effective immediately and even affects applications that have been approved in principle. This means that many applicants who have mortgage applications that have progressed to this stage will be forced to apply for other products or cancel their quest for a home loan altogether. Applications that have progressed to a mortgage offer will however be allowed to proceed.
The lender has stated that they are only removing their self-cert products from the market temporarily. The financier also states that another reason for the move is that they have been subjected to a sharp spike in the number of applications for their self-certification mortgages. This means that they must reel back the product for a while so they don't overexpose their loan book to a single product.
While it may be true that the move is temporary it is a strong indication that lenders perceive this type of product to be highly risky. Self-certs have previously been labeled "liar loans" because applicants are not required to prove the income they declare on their application forms. This opens up the possibility of individuals exaggerating their incomes or even fabricating certain income streams altogether. If the individual never misses a mortgage payment and does not have their application audited by the lender they may never get caught out.
The turmoil in the global mortgage market and the subsequent massive write downs of the loan books belonging to some of the biggest lenders in the world has been partly attributed to self-certification mortgages. Some analysts believe that this type of home loan attracts a low quality of applicant and therefore people who are more likely to fall into financial difficulties and default on their loans. It has also been claimed that lenders who allow people to apply for mortgages without having to prove their incomes are practically asking for trouble.
Whatever the case the actions of this lender mimic the actions of many other mortgage lenders making the retraction of self-certification mortgages in this case far from a one off. Many lenders have temporarily suspended some of their home loan products while they reassess their situations and calculate what products to reintroduce and the terms and conditions under which it is to happen. This is certainly no indication that self-certs are going to disappear from the mortgage landscape forever, however it is likely that the criterion under which they are approved in future will be much tighter than in recent history.
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