There are increasing concerns over who will finance freelancer and IT contractor mortgages in the wake of the FSA’s decision to clamp down on mortgage lending criteria.
The FSA last week decided to ban self certified mortgages which will come as a big blow to people who are self-employed, and could in fact stop many potential first time buyers from entering the housing market.
Self certification has been abused in the past with some people over inflating their income in order to obtain a mortgage that they then struggle to repay; however, many self-employed people do not have a constant stream of income even if they can predict their annual income.
Experts are also predicting that as many as 20% of mortgage and remortgage applications may be turned down due to the FSA’s new regulations.
But does penalising the majority really make sound economic sense? Mortgage companies must take action to minimise the risk of borrowers defaulting or else we are in danger of falling back into recession but the market will eventually find a way to support those people affected.
No doubt when the economy is fully back on its feet, risk aversion measures will decrease and some people think the days of “boom and bust” will return.
Meanwhile, mortgage companies are facing another threat; that of mortgage fraud. The situation is getting so bad that 20% of all reported fraud cases involve mortgages and this fraud costs the UK economy around £1bn a year.
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