The payday lender, Quick Loans, announced at the end of last year that they will be selling self-cert mortgages only accessible through its website. Previously when consumers took out a ‘self-cert’ mortgage, they self-certified that the income stated in their mortgage application was true. As you can imagine this led to abuse of the system, particularly as some of these lenders were offering 100% mortgages. At the time this was music to the ear of your ‘have-a-go’ property investor, but unfortunately property values took a big hit in the crash of 2007, leaving many in negative equity and out of work. Because of the harm caused to consumers through self-cert mortgages in the past, this is no longer permitted in the UK.
There are certainly no signs of it getting easier to obtain a mortgage in recent years. The Mortgage Market Review (MMR) came into play in April 2014; this was a comprehensive review of the mortgage market which set out the case for reforming the mortgage market to ensure its sustainability. MMR put full responsibility for assessing whether the customer can afford the loan on to the lenders, making sure that they verify the customer’s income, and made it harder to obtain interest only lending. This essentially was the death of self-cert mortgages.
Closely following that, from 21 March 2016 all firms offering mortgages in the UK will have to comply with the Mortgage Credit Directive (MCD), which requires a thorough affordability assessment based on information that has been verified by the lender, and introduces an EU-wide framework of conduct rules for mortgage firms. The MCD applies equally to first and second charge mortgages. This means that, to carry on second charge mortgage business after 21 March 2016, lenders, administrators and brokers have to be authorised and hold the correct mortgage permissions. So with the market seemingly tightening up, how are these self-cert mortgages able to circumvent the rules set out by the FCA in the MMR? Well, the lender’s offices will be based in Prague in the Czech Republic, where the FCA has no jurisdiction.
When news of the launch first broke Graeme Wingate, founder of Quick Loans, said he expected demand to outstrip the capital held by the company through word of mouth and enquiries on the website. From looking on their website today, you’ll see a statement claiming that they have ceased taking new applications until further notice, as they are working through a severe backlog of people that have registered an interest in these products. So Wingate’s was right! They are a privately funded firm, so that is no surprise, however they could quite easily come back after securing further funding from a private equity firm, and with a serious amount of capital behind them these loans could well be more commonplace – which is a serious concern!
The FCA have said that a firm located in an EEA member state can provide a lending service under the Electronic Commerce Directive to UK consumers, but the service has to be provided solely at a distance and on-line. This service, however, would not be regulated by the FCA and if something went wrong then they would not generally be able to intervene. Additionally there would be no recourse to the compulsory jurisdiction of the UK’s Financial Ombudsman Service.
These products therefore have no protection and, as they are only dealing with direct enquires, no advice; which leaves the customer completely exposed. Hopefully the FCA will step up and stamp this out altogether, before other ‘enterprising’ firms get wind of this and look to take advantage of this regulatory loophole.Your home may be repossessed if you do not keep up repayments on your mortgage.