The Financial Conduct Authority has raised concerns about mortgages offered to self-employed customers, stating it does not want the type of product “to become the new self-cert”.
Addressing an audience of brokers and lenders at the Mortgage Business Expo 2016, Lynda Blackwell, mortgage sector manager at the FCA, questioned the decision by some specialist lenders only to ask for one years’ trading records.
While self-employed borrowers – and those with irregular work – must have access to a vibrant mortgage market, this should not jeopardise the quality of underwriting, the regulator said.
Blackwell said: “This is another area where we have seen an easing of requirements by firms, with a reduction from two or three years’ trading records to just one. Some self-employed mortgage applications only require one years’ trading records. I just wondered – is one year’s accounts enough to establish an ability to repay a mortgage?”
The increase in lending to customers with unusual work circumstances and adverse credit means the FCA is particularly keen to monitor the quality of underwriting on these types of product.
Blackwell added: “There are differing views on this, but it will depend on the quality of the underwriting, so affordablity is absolutely key. We look at these developments happening and we worry about a slippery slope.
“We don’t want this to become the new self-cert in today’s market. After all, we do see a high percentage of self-employed businesses failing in the first year.
“At the same time, borrowers shouldn’t be shut out of the market just because they are self-employed. We are in a changing world where more and more people are self-employed or on zero hours contracts.
“That shouldn’t in itself be a reason not to get a mortgage. It may be more challenging to get a mortgage, but it should be more doable if the borrower can establish they can afford it.”