The City watchdog has issued a warning to consumers against using mortgage firms not regulated in the UK.

The warning comes just days after Prague-based lender Selfcert.co.uk – launched from the Czech Republic to bypass regulatory restrictions on self-cert loans – closed to new applications after being inundated with requests.

The FCA didn’t name any firms but used a warning notice on its website to warn consumers that if they take a mortgage from a firm outside the UK they will lose protections such as the right to complain to the Financial Ombudsman Service and the right to be treated fairly if they struggle with repayments.

The FCA notice said: “Firms providing on-line services from an establishment in an European Economic Area 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.”

SelfCert.co.uk had effectively ‘passported’ into the UK using European Commerce Directive rules. This meant they could offer mortgages online, but wouldn’t be able to speak to customers.

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.

The FCA said borrowers should always find a regulated mortgage adviser and find out how they are protected if they fall into arrears.

Self-cert mortgages, also known as liar loans, were popular before the financial crash as borrowers would just state their income with little proof needed.

However, rules have since been beefed up under the Mortgage Market Review, which introduced tougher application criteria and affordability checks, effectively banning self-cert loans.

From March new rules being introduced under the Mortgage Credit Directive also mean any firms, including those from the EEA, would need to undertake affordability checks on borrowers.