Fast-track mortgages no greater risk

Fitch Ratings, one of the leading ratings agencies which assesses the risk of assets, equities, companies and even countries, has analysed fast-track mortgages and concludes that they are no more risky than mortgages where income is verified.

So-called ‘fast track’ loans usually involve an individual putting down a very large deposit. The mortgage lender then processes the case quickly, without checking up on the income stated on the application form.

They are often, incorrectly, lumped in with ‘self-certification’ mortgages, where the applicant expressly vouches for their own income.

Fitch analysed 700,00 mortgages and found that borrowers of fast-track loans are actually less likely to default than fully-income verified mortgages in most instances.

Self-certification mortgages, on the other hand, were found to be far more likely to default.

Fitch European Residential Mortgage Backed Securities managing director Gregg Kohansky says:

“Lenders typically apply stricter credit scoring criteria for fast-tracked mortgages than for fully verified loans so the results are not necessarily suprising.”

The Financial Services Authority has recommended that lenders should run income checks on all mortgages, and get rid of self-certification altogether.

Industry experts have warned of the danger of ‘throwing the fast-track baby out with the self-cert bathwater’, maintaining that fast-track mortgages are safe, cheaper for them to process and easier for borrowers with big deposits to arrange.

These findings from Fitch appear to chime with that view. The report says: “It looks doubtful that fast-track processing in UK prime lending is generically comparable to self-certification in the non-conforming sector.”