Clearly, we are all aware of the recent BBC documentary highlighting the risk involved in these types of mortgages and as a result, the attention the Financial Services Authority is now focusing on people falsely enhancing their income to meet the lender’s criteria.
Even on fast-track mortgages, where the mortgage adviser knowing the client to have a good credit history, the broker could collude with the client to enhance their declared income in the knowledge that they are unlikely to be asked to prove this figure.
As a former commercial mortgage underwriter, I have little sympathy with current lenders who, rather than employing people who understand risk, would rather, in most cases, employ inexperienced staff who simply read from a manual. I had personal experience of this with my own mortgage which I submitted to the Nationwide.
On my accountants advice, I formed a limited liability partnership (LLP) with my wife in order that we may split our earnings to minimise the impact of higher rate tax.
We previously traded as sole traders in exactly the same business. Needless to say, Nationwide asked for two years’ accounts – impossible if you have been trading for 18 months as an LLP – and would not accept confirmation from the accountant that the income was well in excess of what was required. Eventually it accepted a P60 from an old employer doing a totally different job.
My argument is that, personally, I can think of very few circumstances where even the self-employed with use of bank statements, management information and the help of their accountant cannot show, within reasonable doubt, the level of their income.
The possible exception to this, of course, is the ‘cash in hand’ merchants. And frankly if they are prepared to defraud the taxman, and thus increasing the amount of tax the rest of us have to pay, then I have little sympathy if they have problems raising a mortgage.
I believe the answer to the self-cert question is for underwriters to be empowered and to understand more than that which is just written in a manual.
Paul Ormerod
Caliber Financial Associates Limited
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