Advisers today branded proposals to effectively ban self-certification mortgages "inappropriate", saying they will leave the self-employed unable to access the mortgage market.
In its Mortgage Market Review discussion paper, issued today, the regulator says lenders will require verification of income for all types of mortgage applications.
Advisers say the proposal has been on the FSA's radar for some time, but argue it will hit a significant group of would-be-borrowers.
Brian Murphy, head of lending at the Mortgage Advice Bureau, says: "The proposal is unlikely to have a significant impact on the market, as self-cert products have mostly disappeared already.
"However, the removal of the self-cert altogether will mean that the self employed, will struggle to access the housing market."
Ruth Whitehead, principal at Ruth Whitehead Associates, says she can not understand why the self-cert arena has been labelled "toxic" alongside 100% mortgages and the sub-prime market.
"In my experience it is not the area of difficulty people say it is," she says. "Those who actually deserve a decent mortgage now won't be able to get one."
The FSA says its analysis shows self-cert borrowers take out larger loan amounts than borrowers with standard products and fall into arrears much more frequently. It estimates arrears rates can be up to three or four times higher than that of an income-verified borrower.
It adds while self-cert deals were designed specifically for the self-employed, individuals with regular employment were also allowed to attain them.
Paul Broadhead, head of mortgage policy at the Building Societies Association, says: "We have always regarded self certification mortgages as a niche product for a very small group of borrowers, and don't believe that such mortgages should have reached a market share of anywhere near 45%.
"However, such products are suitable for a minority of people, and an outright ban is not appropriate."
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