Self cert mortgage ban penalises would-be entrepreneurs
Posted Oct 21, 2009
Following on from the news that the FSA is proposing to ban 'self cert' mortgages, the ACCA has said that such changes would have serious implications for many would-be entrepreneurs.
The planned reforms are aimed at improving risk management practices among mortgage lenders, but business groups have pointed out an effective self cert mortgage ban could have serious consequences for people who cannot easily prove their income - including contractors of course, and many other small business people.
John Davis, head of business law at the ACCA (Association of Chartered Certified Accountants) noted that the proposals were aimed at ensuring the mortgage market works better for consumers, in a sustainable way, but also said:
"One of the suggested changes is to ban 'self-cert' mortgages through required verification of borrowers' income. This means that many would-be entrepreneurs or those just starting out as self-employed could find it difficult to get a mortgage as they may not be in a position to prove their income.
Self-employed in an "inferior position"
"Self-employed applicants can help themselves by keeping meticulous records of their income and outgoings, but they will always be in an inferior position to those on regular incomes as regards giving an indication of their future earnings capacity. It is right that lenders tighten up their procedures, but this needs to be done in a way which does not discriminate and does not put off individuals from starting up in business by themselves."
The ACCA believes that the responsibility should always be on the lender to check and verify someone's ability to repay a mortgage.Whilst a proposed affordability test for all mortgages is sensible, the global accountancy body is concerned that future entrepreneurs will be reluctant to take the plunge.
John Davies concluded: "Mortgages are inherently risky, but the situation whereby lenders lend on the strength of exaggerated claims about income can only in the end in problems on both sides. It is right that reasonable controls on mortgage advances are introduced. But the promised changes on self-cert mortgages must take into account the potential consequences for entrepreneurs and potential entrepreneurs and ensure that those in this vital sector of the economy are treated fairly."
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