Self-certified mortgages from firms not based in the UK – warning to consumers

In light of recent media coverage about a firm outside the UK relying on the European Electronic Commerce Directive (ECD) to provide mortgages to customers in the UK without the protections offered by the UK’s mortgage regime, we are telling consumers about what this means for them.

Previously, when consumers took out a self-certified mortgage they self-certified that the income stated in their mortgage application was true. 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.

No UK regulatory protection – what this means for you

If you take out a mortgage offered from outside the UK under the ECD, you will lose important UK consumer protection benefits, such as the right to refer complaints to the UK’s Financial Ombudsman Service and to be treated fairly when facing payment difficulties.

Under the ECD, firms can only contact customers on-line, not by telephone or post.  This means you will not be able to speak to the firm about your mortgage arrangements.

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.

Action for consumers

  • Before making any decisions, find a regulated mortgage adviser who can give you advice on mortgage products from a wide range of lenders including those regulated in the UK. Make sure your adviser is qualified and FCA regulated (check the Financial Services Register).
  • If you are still considering using a firm based outside the UK, find out what protections you will have if things go wrong. Ask for a copy of the mortgage terms and conditions.  Ask for the contact details of the firm’s regulator.
  • Find out how the firm will deal with borrowers who fall into arrears, plus details of fees and charges.
  • Remember you will not be protected by UK regulation if things go wrong, and you could lose your home if you cannot afford your mortgage payments.