FSA To Introduce Tough Affordability Checks For Borrowers Of Mortgages And Remortgages.
Self declaration mortgages and remortgages have been a common form or mortgage lending for a considerable time.
The self certification of income for self employed remortgages and mortgages applicants was very common and also very popular.
. income means that no official proof of income is required and that the mortgage applicant simply declares what he earns.
The self employed stated their own income on a letter head.
Many self employed applicants such as tradesmen are paid in cash by the private individuals whose homes they decorate, whose kitchens they fit, etc.
Other trades such as hairdressers frequently receive cash in hand for their work.
Being only human these self employed hid their true earnings to avoid paying income tax.
Some of these individuals were actually earning the income that they claimed they were on their self declarations, but being a little dishonest simply could not prove it officially.
For these self employed self certs were alright when applying for mortgages and remortgages as they had the earning capacity to support the repayments to the remortgage or mortgage.
The problem arose was when the mortgage and remortgage applicant lied about their profit and augmented it way above what they in fact did earn.
Self certifications lead to people being unable to meet their mortgage payments and some fell into mortgage arrears and suffered from the repossession of their property as a result.
Since the start of the credit crunch most mortgage lenders of their own volition have abolished self certification of income without any legislation advising them or in fact ordering them to do so.
Although a couple of mortgage lenders are still accepting self declarations of income they now often ask for additional further official verification of earnings.
The FSA desire the complete abolition of self certs. and the mortgage lenders must comment on this by the end of January 2010.
Before the credit crunch the FSA truly believed that the mortgage industry would regulate itself in a decent and honest way.
This did not happen and it was the rash lending of these very lenders which precipitated the credit crisis
To profit themselves and to receive big bonuses many financial fat cats cared nothing about whether those borrowing mortgages and remortgages from them could afford the repayments.
The death of this way of conducting business is close at hand..
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