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The self-certification mortgage market: a time-bomb waiting to explode?

Amanda Jarvis

February 25, 2003

Furthermore, fuelled by historically low
interest rates, soaring house prices, changing employment patterns and increasing competition, the UK self-certification mortgage market has grown
rapidly over the last five years, reaching an estimated 9.8 billion in 2002.
As it has grown, mainstream mortgage lenders have flocked to the market.
However, as with other mortgage products, the self-certification mortgage
market’s growth rate is unsustainable even if the economy remains buoyant.
If the economy takes a turn for the worse, the self-certification market
could be a time-bomb waiting to explode.

Self-certification enables more people to get a mortgage
“A self-certification mortgage is any mortgage where a borrower (or their
IFA) certifies their annual income without also having to supply documental
proof, such as wage slips or audited accounts in the case of people in
self-employment. Self-certification mortgages were originally pioneered in
the late 1980s to capture customers that were being turned away because they
did not fit the normal working requirements of mainstream lenders,
particularly because they could not provide a guaranteed income. Therefore,
it is, in essence, a ‘catch-all’ product because it appeals to many
different borrowers. These include the self-employment, employed with more
than one job, part-timers, temporary employees and even full time employees
whose circumstances mean they better fit the self-certification market. The
number of people that require a self-certification mortgage is also
increasing because a rising proportion of the population have adopted
working practices that vary from the norm, meaning that more people now
struggle to meet the traditionally lending requirements of mainstream
mortgage providers” comments Edward Ripley, Datamonitor financial services
analyst and author of the report.

The self-certification mortgage market is growing faster than the mainstream
mortgage market
The UK self-certification mortgage market was worth £9.8 billion in 2002 in
terms of gross advances and now accounts for almost 5% of the total UK
mortgage market. Furthermore, it has grown at 27.7 per cent per year on
average over the last five years – a rate that even outstrips the impressive
growth experienced in the mainstream mortgage market. Much of the growth
experienced in the self-certification mortgage market has been driven by the
same factors that helped the mainstream mortgage market grow rapidly in the
last few years, most notable that soaring house prices have pushed up loan


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