Contractor Mortgages Contractor Pensions Contractors

The Financial Services Authority (FSA) today laid out plans for major reforms of the UK mortgage market, reflecting its more 'intrusive' role in regulation. The headline proposal is for an effective banning of 'self cert' (self certification) mortgages.

So, given that contractors have historically had trouble proving their income, what effect could the new proposals have on contractor mortgages?

Tony Harris, from Contractor Financials, shared his thoughts with us earlier today:

Self Cert mortgages are all but dead already

"In reality, the self cert mortgage is all but dead already because one of the last remaining players, Nationwide, pulled all of their products from the market last week.

"I think that the self employed have been caught in the crossfire as the FSA have been increasingly keen to be seen to be acting tough with the banks. In 2007, an estimated third of all mortgages approved were not backed by proof of income and a higher proportion of these loans have apparently now fallen into arrears. The FSA has belatedly become concerned about the potential for fraud and for consumers to overstretch themselves and it therefore no surprise that there is now speculation that they will ban self certs altogether.

"Self certs definitely have their place, but in the frenzy to lend in 2006/7 we heard anecdotal evidence from mortgage companies that PAYE cleaners and teachers were successfully self certifying income many times greater than what could be proved using normal means and unfortunately these excesses may have killed off a tool that was of real use to genuine entrepreneurs."

Specialist help for contractors

"Accompanying the the explosion in small business creation over recent years came mortgage products which reflected the fact that traditional income verification models don't work in the early years of trading. The death of self cert is very bad news in terms of maintaining the dynamic nature of UK PLC. We cannot hope to maintain an enterprise economy if wealth generators are forced back into paid employment every time they need a mortgage to simply to put a roof over their heads.

"As far as contractors are concerned, thankfully the contract based underwriting that we have negotiated with many lenders remains in place and so we can still secure decent sized mortgages at the same interest rates as a 'permie' would pay' but I suspect that many less specialist brokers will now struggle to help their contractor clients".

Further resources

- You can read the full FSA proposals here (PDF).

- Read our guide to finding the right IT contractor mortgage

- Our summary of the financial services products available to IT contractors.