The Financial Conduct Authority has warned consumers about taking out self-certification mortgages from outside the UK.
The watchdog said that anyone taking out a mortgage from overseas under the European Electronic Commerce Directive (ECD) will lose their consumer protection benefits.
The news comes after a new self-certification lender called Selfcert.co.uk launched in the Czech Republic on 18 January.
Self-cert mortgages do not require people to provide evidence of their income and were therefore popular with self-employed workers and freelancers.
They were dubbed “liar loans” as borrowers frequently exaggerated their earnings in order to get a bigger a loan. As a result of their abuse they were banned by the FCA in the Mortgage Market Review in 2014.
The FCA said in its warning notice: “Because of the harm caused to consumers in the past, this is no longer permitted in the UK and firms must check a customer can afford a mortgage, including verifying their income in every case.
“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.”
Selfcert.co.uk is offering mortgage rates to all customers at 2% above the Bank of England base rate, lending up to £500,000 with a minimum deposit of 15%.
However, it only has £50 million to lend which it said will fund between 250-300 mortgages. The firm will not lend “inside the M25” due to concerns about possible bubbles in the London property market.
The regulator warned that those taking out a self-cert mortgage would lose the right to refer complaints to the UK’s Financial Ombudsman Service and to be treated fairly when facing payment difficulties.
The FCA said: “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.
“Even if a regulated mortgage adviser in the UK recommends such a mortgage, you will not be able to get compensation from that adviser if it turns out you cannot afford the mortgage payments. This is because the adviser is not responsible for assessing affordability.”
The watchdog recommends that consumers should find a qualified and regulated FCA mortgage adviser.
For anyone considering using a firm based outside the UK, the FCA said that they should ask for a copy of the mortgage terms and conditions, the firm’s regulator and how it deals with borrowers who fall into arrears.
