A recent news story in Mortgage Introducer highlighted the growing controversy surrounding fast-track mortgages which, in recent months, have become an increasingly popular alternative to self-certification deals.
The reason behind the migration from self-cert to fast-track is mainly because brokers believe they can get cheaper rates for their clients and, some say, because brokers are shying away from the perceived regulatory risk that self-cert deals represent.
Whether these reasons are valid is open to debate, but one fact which is clear is that self-cert is going through a period of decline, despite there still being a need for self-employed self-cert products. The factors that have driven the growth of the self-cert market have not changed, so there are clearly other forces coming into play which are favouring fast-track deals.
Key difference
The key difference between self-cert and fast-track is that self-cert is a product whereas fast-track is a facility. Self-cert is for those applicants with complex financial circumstances, who find it difficult or impossible to provide proof of income in the normal way. The self-cert market has developed steadily over the past decade and lenders report that levels of arrears and defaults are usually not significantly different to mainstream mortgages. This proves it is possible to lend prudently on a self-cert basis, despite the negative publicity the product has attracted in the past.
Fast-track is a more recent development and came about to enable low loan-to-value (LTV), high credit score applicatons to speed through to completion without being delayed while proof of income was produced. However, lenders reserved the right to ask for proof of income and made it clear that they would carry out spot-checks to ensure the facility was not being abused. Or at least, they used to.
Today, the basis on which fast-track is being provided appears to have changed dramatically. Not only is fast-track available up to 95 per cent LTV but some lenders are guaranteeing not to request any further documentation to verify income, following submission of an application. If that isn’t confusing enough, sourcing systems are also muddying the waters by listing fast-track products within their self-cert categories.
Open to abuse
It is no wonder then that an increasing number of brokers are turning away from self-cert and favouring fast-track. Fast-track, as its name implies, is quick, easy and gives borrowers access to cheaper products than self-cert deals.
The problem, as Tim Hague, managing director of BM Solutions, points out, is that ‘submitting what should clearly be a self-cert application on a fast-track basis is open to abuse’. His argument is that the rules are clear – ‘a fast-track applicant must be able to produce proof of income if they are asked to do so. If they can’t then the case is self-cert and should be subject to the underwriting and credit checks afforded to that business.”
Brokers who are willing to run the gauntlet and try to get a self-cert application through on a fast-track basis may also encounter additional problems. I have heard of a recent case in which an applicant took a loan on a fast-track basis and then subsequently applied for a further advance. When asked for proof of income he couldn’t provide it and then faced redemption penalties in order to switch his mortgage to a deal more appropriate to his needs. Even if the error is unearthed at application stage, the broker is faced with the embarrassing situation of explaining to their client why they have to complete a new application form and effectively start again from scratch.
It is also questionable how significant the benefits of fast-tracking actually are. Self-cert mortgages used to command a premium price, but competition has squeezed margins and the difference between self-cert and fast-track pricing is not as wide as it used to be. Speed is also less of an issue in today’s era of online submissions and fast service guarantees.
It certainly appears that fast-track lenders have fudged the issues surrounding fast-track applications and have made it difficult for well intending brokers to do the right thing. How can a guarantee not to ask for additional documentation to verify income, sit within the criteria for a fast-track mortgage? Surely, this then becomes a self-cert deal and should be treated as such?
Answers
The market is confused and wants clarification. We have written to a number of key lenders and asked them to clarify their policies. Their responses indicate, quite clearly, that fast-track applicants must be able to prove income if asked to do so. However, the evidence appears to indicate that some lenders are willing to look the other way to ensure new business continues to roll in.
There is far more at stake here than simply establishing a few points of clarification about what constitutes a self-cert or fast-track mortgage. With tangible signs that the market is slowing and that an increasing number of borrowers are experiencing financial difficulties, this issue has all the hallmarks of a major industry scandal in the making, which could blow the reputation of brokers and lenders out of the water. And let’s be honest, this industry can’t afford to take too many more reputational hits.
It is incumbent on lenders who provide fast-track to clarify their policies and remove any ambiguities. We need to demonstrate that, as an industry, we are capable of putting our own house in order.
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