Self-certification - mortgage support for today’s working lifestyles James Chidgey UCB Home Loans

Content Birth of self-certification Developments from mid-90’s onwards Impact of statutory regulation FSA review November 2005 Typical client circumstances Key numbers and market drivers Future forecasts

Twenty years ago - a revolutionary birth Parents - the deregulation of mortgages and foreign Bank entrants into the UK Fixed rate mortgages introduced Gap in the market for self-employed and high net worth borrowers Lenders typically charged 1% premium and LTV’s a cautious 75% Known as ‘High Equity’ lending!

Developments since the mid-90’s More lenders - more product innovation Responsive to changing working patterns Market became specialist broker led Expansion of self-cert to the employed, contract workers, multiple income earners Ltv’s crept up to 85% - premiums cut The mortgage market was booming!

Self Certification Gross Advances Source: Datamonitor

Impact of statutory regulation FSA lays down boundaries for lenders and advisers alike Lenders must act responsibly Common sense approach to self-certification prevails Self-certification gets the ‘thumbs up’ from the FSA

FSA’s review - November 2005 Questioned ten lenders, visited 41 firms, inspected 249 files Lenders have strengthened systems and controls since M-Day Advisers need to be more robust with affordability and suitability checks Demonstrate the recommendation – a ‘reasons why’ letter?

FSA’s review – our view Overall a positive – no scare stories Documentation must be clear and detailed Lenders and advisers have a shared responsibility to ensure client fits self-cert Advisers should use lenders who are experienced market players A stronger market sector going forward

Scenerios suited to self-cert. today Self-employed start-up less than 3 yrs accounts Growing business – current yrs income higher Several businesses – complex arrangements Smart accountant – net profits not actual income Sole traders in cash- type businesses Directors with low basic salary, high dividend earnings Two jobs needing credit for both for the mortgage Low basic salary, but regular commission or bonuses Those with a variety of incomes

Self-employed are by far the largest contributors to the self- certification mortgage market – Datamonitor 2004

Numbers of self-employed Source: Datamonitor millions

Key numbers Market size – around £18billion Over 6% of gross mortgage volumes Datamonitor confirm almost six million people in employment types suited to self-certification That’s over 20% of the working population!

Market forecasts - total mortgage market Gross Advances £bn f285f f = forecast Source: CML

In Datamonitor’s view, self - certification continues to outperform the retail mortgage market, 2004 – 2009f

Key market drivers The change in the UK working patterns and lifestyles Increased awareness of self-certification products through the media and regulator Flatter mortgage market – less equity Self-cert interest rates moving closer to prime rates through competition and improvements in underwriting techniques

Charterhouse Research Q4 2005

In summary Self-certification will be a significant market sector for the foreseeable future Forecast to outperform the growth in prime by almost 5% over the next four years Potentially some 20% of the working population have a need Experienced lenders are key to advisers using this facility for their clients We must all work closer with our regulator, so that the right clients have the right products for the right reasons!