In a move to reduce payment problems, the FSA plan on banning all fast-track and self-certified mortgages. This will make it more difficult for the self employed to obtain a good mortgage. Those who have recently become self-employed will generally have very little hope of applying for a “self-certified mortgage”.

The FSA has pushed forward as proposal that requires all borrowers to verify their income to prevent over inflation of income. The news comes as no suprise after recent findings show that almost half of all approved mortgage applications have been self certified. Many believe that this was a major contributor to the recent credit crunch.

Although self-certified mortgages have almost disappeared from the market since the credit crunch, this proposal ensures that it stays gone.

Building Societies Association said there was a risk the proposals could create “mortgage prisoners”. Paul Broadhead, head of mortgage policy at the BSA, said: “To ensure borrowers are not adversely affected, it will be important that when the rules are implemented they provide clarity for lenders and are enforced consistently across the market. Interest-only mortgages are not inherently bad or high risk. However, it is important that borrowers with interest-only mortgages understand the importance of having a plan in place to repay their mortgage at the end of its term. The FSA needs to proceed with caution so as not to restrict the use of interest-only as a way of helping borrowers overcome repayment difficulties.”

The FSA found that:

• 46% of households either had no money left, or had a shortfall after mortgage payments and living costs were deducted from their income;
• Almost half of new mortgages between 2007 and the first quarter of 2010 were provided without a customer having to verify their income;
• The share of interest-only mortgages has been increasing. At the peak of the market, over 30% of all mortgages were interest-only;
• Many consumers with no repayment vehicle count on future house price rises or uncertain life events to repay their mortgage and some have no plan at all;
• Borrowers with a credit-impaired history are particularly vulnerable.