British entrepreneurs should consider buying property now.
We are not taking a view on prices, but most of us may not
have the opportunity to acquire real estate for much longer.
The British government wants to ban “self
certification” mortgages. While most mortgages demand proof of income, self
certification mortgages, as the name suggests, allow the borrower to certify
his own income.
Most entrepreneurs would be unable to buy a home any other
way: only a minority have already made a large pile of surplus cash that
enables them to buy outright without a loan, and, of the rest, most would have
difficulty proving that they have a regular income, even when they are doing
Despite this, a sweeping ban is proposed in the name of
“clamping down on irresponsible lending”.
This is an irrational response to the lending crisis. There
is no evidence that self certification mortgages constitute irresponsible
lending. On the contrary, the credit crisis was triggered by obviously
irresponsible lending to people who were able to show a definite regular income
– but an income so low and so precarious that default was all too foreseeable.
Abolishing self certification mortgages is another case of
discrimination against the self-employed. Its economic effect will be to
discourage enterprise at the time when enterprise is needed most.
Like everyone else, entrepreneurs need a place to live.
Their property holdings are also usually crucial to their business plans. Many
have little choice but to put their homes up as collateral for business loans.
Again, the UK mortgage system discriminates against
entrepreneurs. Mortgages – usually the cheapest form of borrowing – are only
permitted when the buyer can satisfy ‘affordability’ criteria. Of course, those
starting a business tend to have little if any income and thus cannot ‘afford’
Instead they take out more expensive bank loans, for which
they are permitted to use their property as collateral. Somehow, with wonderful
bureaucratic logic, the more expensive mortgage is also deemed the more
Others have found the self certification route a convenient,
if not entirely legitimate, way of circumventing this particular piece of
counterproductive bureaucracy by taking out mortgages to finance their business
Property ownership is important to most people, and doubly
important to most entrepreneurs. Obstacles to business owners buying property –
or borrowing against property already owned – are therefore also obstacles to
people starting and running their own businesses.
We don’t often raise a call to action on this blog, but if
you share our view that grown up people should be allowed to make grown up
decisions and feel it is imperative that start-ups are able to benefit from the
cheapest sources of finance available then we invite you to let Britain’s
Financial Services Authority know by making
a submission to its Mortgage Market Review.
We see no reason why people should not be able to borrow up
to two-thirds of the value of their property for whatever reason – without
questions and without having to prove affordability. If we fail to meet the
repayments we lose our homes. Just so long as we know that when we take out the
mortgage, let us decide for ourselves.