Wednesday, 29 December 2010

Whatever happened to self certified loans?

Before the financial crisis, the UK banking system offered around 750 self certified mortgage products. By the beginning of 2010, all those products had disappeared. The self certified mortgage is no more.

UK banks seem to learn something about lending. It was a simple lesson, but costly one. When writing out a loan, it's usually worthwhile to check out the documentation offered by the borrower.


LEA said...

Good riddance.

buildingstoat said...

I think that's a bit of a shame. I had two self-certified mortgages (one after the other, not together) and thought they were a massive improvement on the pointless paper shuffling that went before and goes on now. It was a nice simple arrangement - a personal loan secured on a house - default on the loan, we take you house.

What is the point of submitting 3 years accounts to some school leaver who has very little chance of understanding what they are reading. And even then there is absolutely no way to be sure what business will be like next year, never mind in 5 years.

For at least half a million unlucky government employees, the ability to pay their mortgages that seemed to be guaranteed by those carefully checked pay slips, will turn out to be nonsense this year.

The thing about the future is, it's uncertain - always will be.

Fred said...

On one level I agree with buildingstoat however it was an invitation for people with limited income to gamble on rapidly rising house prices. If they couldn't keep up the payments then they could easily sell and take the profit - or so the logic ran. This logic contributed to the bubble for all of us.

The banks went along with it like a herd of lemmings; each scared they might be left behind.

Finally they grasp the risk and they dash to the other extreme: leaving the self employed high and dry.

The future is uncertain and the interest only loans leave both the lender and the borrower at the cliff edge in perpetuity.

The worst combinations [self-cert, interest only, low deposit] will now be consigned to history - at last.

Alice Cook said...


that is a very good point. Actually, I hadn't thought of it that way.

I suppose they were very useful for self employed builders who had only limited access to documentation.

Rich Tee said...

I agree with buildingstoat in principle. I would find it flattering to be trusted, having to prove everything is patronising.

The trouble is that Britain is a patriarchal society where you are treated as though you can't be trusted to make your own decisions and the government must rescue you and protect you.

In the USA you have more freedom - but you break a contract they don't hesitate in taking back what is legally theirs, hence the "repo man".