Self-Employed Borrowers: Go Away!

HBOS brands have withdrawn from self-cert and sub-prime mortgage lending and tightened all new build criteria.

HBOS subsidiaries Bank of Scotland (BoS) and BM Solutions (BM) have announced they have pulled their entire range of new business self-certification and sub-prime mortgage products.

The move sees the newly formed giant Lloyds Banking Group (comprising Lloyds TSB and HBOS) reducing its overall lending risk and becoming far more cautious.

The HBOS brands made the announcement late last week and all affected products are now no longer available. This is a blow to the mortgage industry, in particular to brokers who introduced the vast majority of the two lenders' specialist business.

In addition the lender has massively tightened criteria in new build lending, on both mainstream and buy-to-let business.

What has it pulled?

• BM and BoS have completely withdrawn from the self-cert mortgage market.
• BM has also stopped its sub-prime operations -- it was still offering near-prime lending to those with extremely minor credit blips. Now this has gone.
• All HBOS brands have tightened their lending criteria on any mainstream new build properties, reducing the maximum loan-to-value ratio from 90% to 80%. This means anyone buying a new build property needs at least 20% upfront.
• Plus the four brands (Halifax, BoS, BM, Intelligent Finance) have reduced the maximum loan-to-value on new build buy-to-let properties from 75% to 65%. So anyone buying a new build property to let out needs at least 35% upfront.

Why has it made the move?

The country's largest lending group says it has made the changes on the back of similar moves to tighten criteria by other lenders.

It also pointed to the fact that there has been a huge reduction in the number of active players in the specialist lending sector (which comprises self-cert, sub-prime and buy-to-let lending). A spokesperson for Lloyds Banking Group claimed it had 'no option other than to respond to ensure we continue to lend in a prudent and proportionate manner.'

It's true that the specialist markets have shrunk enormously in the last year alone with around 20 lenders pulling out of the self-cert market and 22 from sub-prime lending. Lloyds TSB does not want to be the lender of last resort for all the borrowers left behind by those lenders that have exited the market. After all, specialist lending is by its very nature higher risk than mainstream lending.

The company also stressed that not only does it still have one of the widest mainstream residential mortgage ranges available, BM Solutions will also continue to be the country's largest buy-to-let lender. But that will be cold comfort to borrowers left with a dwindling number of specialist mortgages to choose from, or brokers with even less options for placing their clients' business.

Going, going ...

The sub-prime market has virtually disappeared in the UK and BM Solutions only lent at the near-prime end of the sector, to borrowers with extremely minor credit problems.

But what is more of a blow is the total withdrawal of self-cert lending -- a controversial area of the market that has raised concerns in the past from both the regulator and the media.

Self-cert lending was designed to help the self-employed get a mortgage without having to prove their income. This is because many self-employed borrowers reduce their income on paper to minimise their tax liabilities. But they can often afford to service a larger mortgage than their accounts testify. Self-cert allows them to certify their own income without the lender checking this.

But it also became widely used by borrowers who were not self-employed and this led to some controversy as some borrowers began lying about their income in order to get larger mortgages than the lender thought they could afford.

Self-cert in the right circumstances though is valuable and valid for those who genuinely need a mortgage and would find it hard to prove their income. As a freelance journalist, I will have to get a self-cert mortgage in order to buy a property.

But where can I go now that two of the biggest players have withdrawn from the market?

Self-cert saviours

Probably the biggest remaining self-cert lender is The Mortgage Works, the specialist lending subsidiary of Nationwide. As of today (2/2/09) it still offers a range of self-cert mortgages -- the lender confirmed all the rates below at noon. They are all fixed rates, only available up to 65% loan-to-value and only available to self-employed borrowers. And the rates are not bad at all, considering.

The Mortgage Works' Self-Cert range

Platform Home Loans' Self-Cert Range

Not available to employed borrowers and not available on new build flats. All the rates below were confirmed at noon on 02/02/09:

In addition to these lenders, a few other specialist lenders, such as Money Partners, are offering self-cert through mortgage brokers only.

Indeed, all the products listed above are only available through brokers and if you cannot prove your income to a lender, you are going to struggle to find a suitable mortgage on the high street.

Even if you do go to a broker be aware that the HBOS withdrawal from self-cert will put enormous pressure on the remaining lenders and mortgages could change rapidly. Do not be at all surprised to see deals quickly repriced, criteria tightened or lenders even withdrawing from the self-cert mortgage market altogether.

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