The Financial Conduct Authority (FCA) has issued a warning about an overseas firm offering self-certified mortgages following adviser concern they could be dangerous for clients and the industry.
Dubbed ‘liars' loans because borrowers filed in their own incomes and outgoings without any documentary proof, self-certifed mortgages played a part in the credit boom and bust that contributed to the 2008 financial crash.
The UK government banned their use five years ago. But last week an overseas mortgage business - Selfcert.co.uk - launched to get around the rules by offering their services to the UK from the Czech Republic.
Professional Adviser revealed advisers' their fears about the re-emergence of self-cert mortgages.
"In black and white this product is great but there's no protection and advisers will almost certainly use it. If they can sell a mortgage and make money, what's to stop them?" David Wilson, managing director of Ne Money, said.
"The regulator needs to warn the general public to beware of this product. It is bad news for clients and for the reputation of the industry."
The FCA seemed to have heard the plea, and has moved against the products.
It has issued a warning to borrowers that while Selfcert relies on the European Electronic Commerce Directive (ECD) to provide mortgages to customers in the UK, it is not covered by protections offered by the UK's mortgage regime.
"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," the FCA stated on its website.
Second adviser win
The warning marks the second win for advisers and Professional Adviser in recent months.
The FCA issued an alert about an unregulated firm it suspected of providing services without authorisation, after it was warned about it by advisers andProfessional Adviser.
In a note of its website, the FCA said that it believed Ledger & Simmons has been providing financial services or products in the UK without our authorisation.
The regulator warns investors to be "especially wary" of dealing with this unauthorised firm.
The move comes after financial advisers alerted the FCA to Ledger & Simmons after coming across its website.
With their help, Professional Adviser investigated the firm and found a series of worrying practices.
No protection
Mortgage customers using overseas firms like Selfcert face a catalogue of risks.
Under the ECD, firms can only contact customers on-line, not by telephone or post. This means borrowers will not be able to speak to the firm about your mortgage arrangements.
Firms providing on-line services from an establishment in an EEA State other than the UK under the ECD have to comply with the law of that state, rather than with UK regulatory law.
If anything goes wrong, the responsibility is with the other EEA State's authorities, not the FCA, the regulator said.
Even if a regulated mortgage adviser in the UK recommends such a mortgage, borrowers will not be able to get compensation from that adviser if it turns out they cannot afford the mortgage payments.
"This is because the adviser is not responsible for assessing affordability," the FCA said.
The regulator is advising borrowers to find a regulated mortgage adviser who can give advice on mortgage products from a wide range of lenders including those regulated in the UK, before making any decisions.
"If you are still considering using a firm based outside the UK, find out what protections you will have if things go wrong. Ask for a copy of the mortgage terms and conditions. Ask for the contact details of the firm's regulator," the FCA said.
From 21 March 2016, all firms offering mortgages in the UK (including EEA firms) will have to comply with the mortgage credit directive, which requires a thorough affordability assessment based on information that has been verified by the lender.
