Make self-cert work for you
More than one in ten UK workers is now self-employed, and unless they can produce three years’ worth of accounts or a letter from an accountant verifying their income, they might well be turned down for a conventional mortgage.
And it is not only the self-employed who can have difficulty proving their income. Employees who receive additional income such as tips, commission or bonuses often find lenders will not take this into consideration when deciding how much to lend them.
Similarly, employees who receive expense payments while away from home, such as airline staff, may not have these included in their salary for mortgage-lending purposes – while contract workers and other people with irregular incomes can have difficulty persuading lenders they are able to make regular mortgage payments.
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“We have seen a number of highly paid people who have had difficulty securing a mainstream mortgage because their income is made up of employed and self-employed elements,” says Robert Clifford of mortgage broker Mortgageforce.
“We had a cricketer who earned around £45,000 a year from after-dinner speaking and similar off-pitch events and a TV celebrity who saw her income practically doubled by a packed diary of supermarket openings,” he adds.
Help is at hand
Self-certification mortgages can help people who would normally have difficulty proving their income to borrow a realistic amount based on their total income and their ability to repay a mortgage.
You simply tell the lender how much you earn and no proof of income is required. But if the income put forward by an applicant seems improbable, the application will come under close scrutiny, says Sally Lauder, press manager at Alliance & Leicester, which has just entered the self-certification market.
“Whilst the name ‘self-certification’ suggests people can state whatever salary they choose, actually there are a number of checks in place for these types of mortgages. First, there are credit checks to look for a track record and proven ability to repay financial commitments. Mortgage advisers and brokers will ask for a declaration of income. Lenders usually then assess the type of income and occupation to ensure that what is stated is fair and reasonable.
Depending on the information provided there can be several further checks in place to seek additional information or confirm details,” she says.
The mortgages
It is possible to borrow up to 90 per cent of the value of a property with a self-certification mortgage from lenders such as Amber HomeLoans, BM Solutions, Bristol & West Mortgages and Mortgage Express. Platform will even lend up to 95 per cent. But typically lenders offer 75–85 per cent loan to value (LTV).
Self-certification mortgages do, however, come at a price. They are not as expensive as they have been, but borrowers can expect interest rates to be at least 0.5 to 1 per cent more than on standard mortgage deals, and arrangement fees can also be pricier.
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There may also be a higher lending charge (HLC) if you borrow a high LTV. If you get the mortgage through a broker – and most borrowers would be wise to do this – you may also have a broker fee to pay.
Although the interest rates are higher, for many people this will be the only way to get on the property ladder. And for the newly self-employed, it may well be possible after a few years to build up enough account information to enable them to switch to a standard mortgage.
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Finding the right mortgage
Around 40 lenders now offer self-certification mortgages. Some lenders only offer them to the self-employed such as Capital Home Loans, Cheshire Building Society and Kent Reliance Building Society.
And some lenders, such as Bank of Scotland Mortgages, Freedom Lending and Mortgages PLC only offer these mortgages through brokers.
“We only sell self-certification mortgages through brokers because they have the established expertise in this field,” says Lauder.
“Brokers can sit down with a client, look at their income and circumstances and identify when a self-certified mortgage may be appropriate. You pay a premium for a self-certification mortgage, so brokers are only likely to suggest them when they are appropriate,” she adds.
A broker can not only help you assess your income and outgoings, but also help you take a realistic look at what you can afford. If you have had credit problems in the past, a broker can also help you present these to the lender in such a way that your application is not automatically rejected.
Products differ, as do costs, so using a broker to scour the market for you can be very helpful and ensure you end up with the right deal.
“Brokers also often have access to exclusive deals that would not normally be avail-able to borrowers directly,” points out Jock Cassidy, a director at independent financial advice firm Ashley Law.
What you can save on these deals should more than make up for any extra cost incurred for using a broker and ensure you end up with the correct product. You may also find that there are alternatives to self-certification mortgages that will work out better for you.
A number of lenders now offer a fast-track service on their standard range of mortgages. These are for people who wish to self-certify their income, and the procedure is similar to applying for a self-certified mortgage. But these should not be confused with self-certification mortgages as there are significant differences, says Cassidy.
“Fast-track deals are for people who want a speedy service but do not have the paperwork to hand to confirm their income. These applicants self-certify their income but if called upon must produce proof of income,” he explains.
Often this will be people who want to borrow money quickly so they do not lose out on buying a particular property. Typically, fast-track borrowers will be offered a lender’s standard mortgage deal, such as a fixed-rate or discount-rate deal, so there will be no premium to pay, but they will have to put down a large deposit of between 15–25 per cent to get the best deals.
However, with fast-track services being offered on standard mortgage deals and often requiring no verification of income, brokers will often also explore this market for self-certifying customers. wm
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Date: 20th, November, 2006
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