A lender, which wished to remain anonymous, said over the last two months, it had charted a spike in the level of self-cert cases falling at least one month behind on repayments after a number of years of arrears running at the same levels.
It believed the rises were the result of consumers feeling the pressure of higher interest rates, but the lender also pointed to the relaxation of criteria for self-cert and incomes being overstated.
The source said: “We have noticed over the last six to eight weeks through our management information reporting that there has been a slight upturn on delinquencies on self-cert cases. We are monitoring this trend very carefully as we recognise self-cert is further up the risk curve and it is more readily impacted by the current market stresses.”
The lender insisted that it had tighter underwriting policies than other players in the market and if it was starting to see the trend, other lenders must also be seeing rising arrears.
Linda Will, managing director of Accord Mortgages, insisted the nature of self-cert meant there was a higher risk of delinquencies, but added that practices in the market could be contributing to it.
“A lot of lenders don’t ask for any breakdown, so the broker just puts forward a total sum including earnings, and investments, etc, that it then puts into the decision. However, the problem is how much of this is guaranteed, continuous income and how much is discretionary? This is a small percentage, but the fabrication factor on some cases is not surprising and in a rising rate environment, some will be struggling.
If lenders are starting to see an increase, it will be the first test of the risk premium and whether they have priced for enough.”
Will also questioned the number of employed people taking on self-cert mortgages.
“A lot of lenders take a cautious view of bonuses, which often forces brokers to place clients in self-cert. However, our estimates put between 50-60 per cent of self-cert cases as employed. I can understand legitimate reasons, but that is a massive percentage and lenders and brokers will have to justify to the FSA why the client is paying an extra 30-40 basis points for a self-cert product.”
Bob Sturges, director of communications at Money Partners, added his concerns.
“Self-cert has been a key driver of the success of the specialist market in the last decade. However, there are question marks over the suitability of self-cert for employed people.”
David Connelly, head of product development at Advantage, admitted it had already pre-empted issues it saw with self-cert.
“We do lend to both self-employed and employed individuals and we have a reasonability check which usually picks up any problems. However, the market has changed and we have tightened criteria to pre-empt these kind of problems. This seems to have worked so far.”
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