No accounts, no mortgage

The FSA began its review of the mortgage market in the UK in 2005 and has now published its latest report on 'Responsible lending'. It recommends that anyone applying for a mortgage in future must be able to prove their income which will mean that self-employed people will need to produce accounts if they want to buy a home.

The alarming thing for anyone who is interested in the property market is the proportion of mortgages that have been self-certified; 45% over the period from 2005 - 2010 peaking at over 50% in 2008 and still at 43% in the first quarter of this year. If the FSA's proposals have the effect of excluding over 40% of buyers from the property market then we may see another drop in house prices as predicted by RICS for more immediate reasons.

The potential effect on the property market seems to be of less concern to the FSA than the need to ensure that there really is some substance behind the assessments that mortgage lenders carry out on borrowers. The report states that the sources of evidence for the assessment should be in writing, from an independent source and should be for a period long enough to cover fluctuations in income "and we would certainly not expect indirect evidence, such as providing headed paper or business cards, to be taken as verification of income". It may be possible that an annotated series of bank statements would meet these criteria but many borrowers will find that the only persuasive evidence will be properly prepared accounts, especially as the FSA report specifically excludes 'declarations of affordability' even if they are signed by an accountant. By inference the FSA is recommending that HMRC extends the pilot scheme which it ran last year that allowed lenders to check the details of a mortgage application against HMRC's own information. Anxious to close all loopholes the FSA also insists that 'fast-track' mortgage applications should have income verification.

The FSA believes that "it is possible for everyone to provide evidence of their income". There may be an element of judgement in that statement whereby 'everyone' actually means 'everyone who should be trusted with a mortgage' but it is true that everybody can learn to keep proper books of account if they do a simple course in bookkeeping like those available from the Accounting and Bookkeeping College.