Plans to prevent risky mortgage lending

by Tax Faculty Team on 20.02.2012 13:57

FSA consults on income verification proposals


The Financial Services Authority (FSA) is seeking comments on its consultation FSA puts common sense at the heart of mortgage lending by 30 March 2012.


This consultation is primarily for mortgage lenders, but we thought you may be interested in particular in sections 3.118 – 3.136 which cover income verification. Some of the other sections in chapter 3 will also be of interest to some members.


The FSA does not propose to change its approach substantially, but it has indicated that it proposes self certification will not be acceptable going forward.


One other area of concern to us is the potential impact of any new rules on access to finance for business development. The foreword comments as follows:


‘We are very aware that some entrepreneurs use residential property to support business borrowing, and it is important not to constrain the ability of people to take consciously chosen business risks. Our existing rules are already tailored to exempt from their application owners of businesses with turnover over £1m per year, who wish to pledge their home as security for a business loan, This reflects the judgement that such borrowers are making carefully chosen decisions and do not need the protection of our mortgage rules. Our rules do however apply to self-employed sole traders, and we believe that many of these should be protected from taking on unaffordable mortgages. The question is therefore where to draw the line. We are therefore consulting on whether there should be some form of carve-out for clearly defined business borrowing, and would welcome feedback on the most appropriate way to pursue this approach.’


We would be interested in any comments on the proposals relating to the practical application in providing income verification references to lenders for your clients.


Following consultation, the FSA Board will make a decision on the final form of rules in summer 2012, but implementation will not be before 2013.


Please post a comment or send your comments on this any other part of the consultation to john.gaskell@icaew.com


Useful links

Accountants’ reports on mortgages - link to ICAEW guidance on income verification

HMRC and mortgage lenders to do some cross checks