Time for the government to end self certified loans and mortgages

The now "public" owned Bradford and Bingley mortgage book is, by all accounts, in a worse state than those of the Northern Rock, and are deemed "poor quality". Whilst I don't doubt that nationalisation was the last and only resort, the government needs to act now with new legislation to stop the same thing happening again, and in particular the government must move to end certain practises which the Bradford and Bingley have led the way in, and that is self certified mortgages.

In the old days, all financial institutions needed long term proof of income, be this wage slip, P60's or other proper documentation, and many responsible lenders still insist on such levels of evidential proof. However, the B & B did not. Bradford and Bingley were famous for not really caring how much you owned because as long as house prices rose, they could always take your home off you and get their money back.

Whilst it might be legal, it was not really what most people would call "good business practice".

A friend of mine who worked until recently for a "sub prime" broker told me two years ago about a cook in a take away was told by one mortgage firm to put down that they were a head chef at a restaurant and claim they earned £38,000 instead of the £13,000 they actually earnt, and this was not uncommon at all for lenders to allow people to fiddle their applications because they were never ever checked.

The government must now legislate to prevent irresponsible lenders from offering loans a self certified basis. There has been a lot of talk from Gordon Brown on this, but it now needs actions to match the words.


JW said...

Beware of simple knee-jerk reactions like this. In making such a change, you need to be careful that the self-employed are not squeezed out of mortgages too.

Norfolk Blogger said...

There are varied and numerous ways for self employed people to prove their income (bank statements, tax doxuments, receipts, etc). The point is though not that self certified mortgages are never checked. There needs to be a system of validating what people ahve certified.