Secured Loans - Are Self Certification Loans Responsible Lending?

A question that is regularly being thrown around in the UK mortgage and loan industry (due to increasing regulation and emphasis on treating customers fairly) surrounds self certification. "Are people risking true affordability levels when applying for a self certification loan?" Does this suggest that tighter regulation should be in place when allowing customers to self certify their income?

The whole basis of self certification or self declaration loans it that they facilitate a customer, who is unable to prove all of their earnings for what ever reason that may be, (for example they are paid in cash or have multiple sources that some lenders may not take into account when making their assessment of the loan application) to sign a disclaimer stating that they can afford the loan based on their declared income.

Because of the increase risk involved in offering customer the ability to self certify their income, it is usual for self certification loans to be more expensive and have stringent underwriting requirements such as having a deposit/more equity available in their property, to mitigate such risk.

However, are we opening ourselves up to a culture where you can take out a loan that you really can't afford? Giving people the ability to falsify their income...

Self certification loans certainly have their uses when applied in the correct manner, especially for those customers who are self employed or receive income from investments that lenders simply won't take into account.

But it does beg the question, is allowing a customer to sign a piece of paper saying they can afford a loan or mortgage without any further proof of income responsible lending? With the down turn in the UK market at present, I would suggest that self certification is an area of lending that is in strong need of review.

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