29th October 2003
'The allegation of mis-selling of self-certification mortgages to be
broadcast on tonight's BBC TV Money Programme is a very serious charge, and
is something that we warned about almost twelve months ago,' states Andrew
Frankish, Technical Director at Mortgage Talk, the North's largest independent mortgage broker.
'Last December, we advised that some brokers were using self-certification
mortgages inappropriately, and that the responsibility for selling these
loans correctly lies with the individual advisors themselves. Indeed, the recent rise in house prices has resulted in some buyers being sold self-certification mortgages that are not right for their needs,' adds Frankish.
He reiterates the advice that Mortgage Talk gave some time ago to anyone
contemplating taking out a self-certification mortgage. 'As house prices have continued to spiral in the last two years, homebuyers have felt under intense pressure to move up the property ladder. As a result, some borrowers have taken out mortgages that they will struggle to pay, if interest rates increase even slightly over the coming months' counsels Frankish.
'Although I genuinely believe that self-certification mortgages are a very
useful product in the right circumstances, many borrowers see them as a way of obtaining a loan for a sum far greater than they would normally qualify for. While they are suitable in a number of cases, there are occasions where buyers will be tempted to over-commit themselves,' he adds.
'A large degree of responsibility for selling these products lies with mortgage brokers themselves. Any decent broker should undertake an affordability calculation, to pre-qualify applicants looking at these products. Even if the client cannot physically produce a wage slip or similar, their income has to be realistic to the nature of their employment, ' says Frankish.
'Moreover, a good broker ought to explain the significance of the client's
monthly commitment, and should produce a statement, in plain English, clarifying the implications of failing to meet their obligations. This should be signed by the client, as an acknowledgement,' he states.
Frankish believes that the only way in which this type of practice can be avoided in the future is for mortgage brokers to be accountable for their actions and advice, in the same way as other professional advisors.
'Mortgage advisors have a moral duty to their clients to give best advice.
Although industry compliance regulations are tougher than ever before, the
best way to ensure that brokers give appropriate advice is for the industry
to have the same degree of recognition, accountability and status as
professionals such as solicitors. After all, bad advice from a mortgage
broker can be just as catastrophic as that from a lawyer,' he states.
'As a result of the BBC's investigation, we will probably see the FSA take action to clamp down on the selling of self-certification mortgages. This may mean that only the self-employed will be able to take out such a loan in the future. This will deprive other genuine applicants, such as low income, high commission sales staff from the chance to obtain a mortgage through legitimate use of these products,' Frankish concludes.
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