Last week, the chairman of the Financial Services Authority, announced that they would be pressing ahead with proposed plans to ban self-certification mortgages.

Consumer protection was cited as one of the reasons for taking this decision which could effectively mean banks having to conduct “affordability tests” for every new mortgage in the future.

Lesley Titcomb, Chief Operating Officer at the FSA said

“There is a clear link between financial overstretch and mortgage arrears and repossessions, and we are determined to protect vulnerable consumers by making sure that everyone who takes on a mortgage can afford it.”

That is a very reasonable point of view and one with which it is hard to disagree. However, this ban will effectively freeze out a significant section of society: the self employed.
Latest figures show that self certification mortgages accounted for 43% of all mortgages in the first quarter of this year, so the impact of such a ban is likely to be very considerable indeed.

One comment on this news from the BBC website sees the need for something to replace self-certification for the self-employed:

“…ending of self-certification will impact mostly upon the 13% of the workforce who are self-employed…..published accounts cannot give an accurate, current picture of disposable income. They also tend to take full advantage of tax avoidance accounting in order to minimise tax liabilities, which leaves them disadvantaged in the mortgage stakes. …..self-certification was a significant contributor to the sub-prime lending crisis……the FSA should look at new ways to assess the credit worthiness of the self-employed, possibly by reviewing bank statements over a 12 month period.”

This is certainly an interesting debate, with people already struggling to get mortgages and finding themselves stuck renting, this new ban will make it even more difficult for people to become homeowners.

How does this affect you?

Have you read the latest from our current Housing Minister?  According to BBC’s Radio 5 Live, John Healey says, “for some people, having their home repossessed, can be the best option”.  What poppycock!  And I can assure you, that’s me doing my best to be polite!

I’m assuming he doesn’t know first hand what it’s  like to be so severely in debt that you face losing your home?  Or the sleepless nights so many people around Britain have, wondering how it all went wrong and what on earth they’ll do if they can’t provide a roof over their family’s heads? Mmmm, I didn’t think so.

So how is it, that he feels it appropriate, to make statements implying losing your home and being out on the streets is in anyone’s best option?

In my opinion, just having the knowledge and fear that your debt has got so out of control, that it jepordises the security of your home, can substantially lower the number of people experiencing reposessions.  How do we we make this effective?  One thing that might help would be to bring in earlier repossession proceedings, enabling the problem to be tackled before things get out of hand and families are left homeless on the streets.

What the government has done is put in place measures that seem to protect consumers struggling with mortgage payments – but in real life, these don’t really help. All they do is delay the evil day when the family finds itself on the street, because they don’t look at the family’s debt situation in the round.

Still following?  Let’s break it down to more simple terms – pay attention Mr Healey ;)  If you were struggling to make ends meet, what’s the last thing you’d fall behind with – month to month? Your mortgage, of course.  The most important security in your life, is the last thing you would ever place in jepordy.  So, meanwhile, you rob Peter to pay Paul, get behind with the gas bill, or your overdraft – or forget to pay that 0% credit card you had – which means the interest you pay, following the default, will whizz upwards to an eye-watering level and somewhere in between all of this, you hit rock bottom and miss a mortgage payment, or two, or three.

Taking into account the above synopsis, in my experience, I’ve found that when someone misses a mortgage payment, this is a symptom of much worse financial distress.  They probably have many other debts and are struggling across the board.  If you leave them till they’ve missed a number of mortgage payments – which is encouraged by the current system, then – in my view – it’s much more likely there wil be no alternative but actual repossession, and maybe homelessness.

Surely it’s preferable for repossession proceedings to be issued automatically the first time people miss a mortgage payment – and then immediately suspended whilst the homeowner puts in place a plan to repay what they can afford across all their debts?

It may seem harsh, but it will catch the average debtor much earlier in their crisis than the current system – forcing them to take action on all their debts whilst they can still afford to, and giving them both the carrot (of being safe whilst they repay what they can REALLY afford) and the stick (the possibility of losing their home remains) – keeping them motivated to climb back to financial security.

So, Mr Healey – start doing your job as Housing Minister properly!  It’s time for tough love and bitter medicine – not the palliative, terminal care you have been providing, which sees Britain with the highest repossession figures for more than a decade.”