Profitting from Failure
There is another aspect of this. There are companies out there - brokerages and packagers - who sell and administer mortgage offers for the banks. They profit no matter what happens to the client.
Brokerages take their cut from the lenders, and sometimes the client. Packagers take a cut from the lenders. Both of them profit for doing no more than someone salaried at the Halifax does from sitting behind a desk. While the person at Halifax is more restricted on what can be offered, the job is the same - find the best product of those available for the client.
When I worked for a brokerage - on the IT side I might add - I saw this work in a self-cert context. While some self-certs were from high street banks, many of them were not. Those not on the high street came from lenders who were in the market looking at the sub-prime side (read: greater risk). Sub-prime self-cert products offered the brokerages and packagers more money for each deal. All for a lot less paperwork.
There was no 3 + 1 income calculation. There was no credit check. Bankruptcy wasn't ever a problem. Sign on the dotted line and the loan is yours.
And, in time, some of the properties went into repossession. The banks lost because the houses could not be sold quickly, in addition to the cost of repossesion. The clients lost because they could no longer make their payments and now had nowhere to live. The brokerage and packagers, on the other hand, had profited already and were untouchable.
Personally, I don't think this ruling goes far enough.
(Posted anonomously as I am looking to be self-employed shortly and will need to deal with the proof of income stuff should I choose to change lenders. In three years. With fully audited accounts.)