In recent weeks all the press has been buzzing about; a company based in the Czech Republic offering so-called “liar loans”.   The FCA has issued a warning that “If you take out a mortgage offered from outside the UK under the ECD, you will lose important UK consumer protection benefits, such as the right to refer complaints to the UK’s Financial Ombudsman Service and to be treated fairly when facing payment difficulties.   Under the ECD, firms can only contact customers on-line, not by telephone or post.  This means you will not be able to speak to the firm about your mortgage arrangements.”

The website of counters with “The important thing is that we are not subject to UK regulation; we are however subject to English Law and the Courts in the UK. All our contracts and services come under the jurisdiction of the English Law. This gives everyone protection, without having the issues of doing business with our hands tied behind our backs.”

The questions one needs to ask include:
• Whilst this new initiative is aimed at the long-term market rather than bridging, is there a place for self-cert in either market?  
• What about the ECD?   As the Czech Republic is a member of the EU and is implementing the EMCD in March, surely the affordability checks therein will apply?
• Where is the business taking place?  Is this yet another attempt to avoid UK taxation?
• Is there a need for self-cert?
• Is the fact that the self-cert company is not lending inside the M25 an indication that property in that area is overvalued?
• Is this an indication that regulation is stifling competition in the market?
• Whether or not Brexit takes place, how is the government going to control and tax firms who do business in the UK and are based elsewhere?

Space does not permit me to comment on all the above, but here, for what it’s worth are my comments on a few aspects:

The purpose of self-certification should be to allow those who don’t fit exactly into mainstream lender criteria to be able to find funding for home purchase.   In this day and age, when more and more people work from home, or are in sectors where income is “lumpy” and varies from year to year, there is clearly a need to appropriate products.   This also applies for start-ups, where it is impossible to provide 3 years of accounts.   Especially where experienced people move from a situation where income was smooth to self-employment, it seems unreasonable to ignore past income in another sphere.    It’s encouraging to note that some firms are loosening criteria.

Also, not enough notice is taken from the fact that people change their spending habits when they become homeowners – a Caribbean holiday or designer handbag is no longer the first priority. 

Underwriters should be able to assess income and affordability, rather than stick to rigid models.   In any case, brokers and lenders alike should promote responsible lending.  It’s in no-ones interest to lend money where the only likely outcome is eventual repossession.

If regulation provides a level playing field, then it does promote competition; if not, it hands an unfair advantage to those who don’t play by the rules.   Regulation should protect the consumer, but not molly-coddle him or her.   When an individual borrows money, he or she should realise that this must at some stage be paid back.   There’s no point in, like Mr. Micawber, saying “I have no doubt I shall, please Heaven, begin to be more beforehand with the world, and to live in a perfectly new manner, if - if, in short, anything turns up.”

Benson Hersch  CEO of the ASTL
A version of this article appeared in the February 2016 edition of Bridging Introducer