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Self cert mortgages
Self-cert mortgages are for people whose
income is difficult to assess using the usual methods. A self cert mortgage
allows you to declare your income without accounts to back them up. The decision
on whether or not to lend to you will be based on how confident the lender is
that you will be able to repay the
mortgage.
Lenders tend to approve mortgage applications on the basis of long-term and
regular income, usually with at least three years of payslips. If you run your
own business you may be able to show three years of accounts but if you have an
irregular income you may not qualify for a conventional mortgage. This is where
self-certification mortgages can help.
THE PROCESS
You may have to consider a self-cert mortgage
if you:
- Are self-employed
- Get a large proportion of your income from commissions or overtime
- Work on a contractual basis
- Work part-time or irregular hours
- Have numerous strands of income
- Rely on bonuses as opposed to your normal wage In other words, if it’s normal for your income to fluctuate, this could be misleading on a conventional mortgage application and may even be rejected.
With a self cert mortgage, you make a signed declaration of your income. The
amount you
borrow will be based on this. The lender will then make extensive credit checks
and possibly look at bank and lender references, confirmation of previous
ownership from solicitors and landlords’ references. If you’re self-employed,
don’t assume that you can only choose a self-cert mortgage, however. Many
lenders have relaxed their lending criteria, enabling you to avoid the sizeable
fees and early repayment charges that can make self-cert mortgages expensive.
COSTS
Self-cert mortgages represent a slightly higher risk for lenders so interest
rates are higher than for conventional mortgages. However, rates have come down
in the past few years to reflect the fact that increasing numbers of people have
varying incomes and more lenders are coming into the market with new and
improved deals. Self-certs are normally 0.5% to 1.5% above mainstream rates.
However, you still need to make sure that you can afford the repayments,
whatever happens to interest rates. It’s this aspect of affordability that the
lender will be scrutinising when deciding whether or not you are a suitable
applicant for a loan.
WHAT TYPE OF MORTGAGE?
As with conventional
mortgages,
self cert mortgages
can have fixed or variable rates and flexible features. These may suit you for
different reasons:
- People with newer businesses may struggle to deal with unexpected rises in mortgage rates, so a fixed mortgage can be excellent value
- If the business is more established, a variable tracker rate might be more appropriate, as it will allow payments to fall if the base rate does. However, the borrower should have a cushion of earnings should rates rise
- Flexible rates allow contract workers to overpay in good times and underpay at others, as well as take advantage of payment holidays
REMORTGAGE
Just because you start off with a self-cert mortgage it doesn’t mean you’ll
always have to have one. If circumstances change and you can prove a full
income, it’s easy to move to a mainstream product. If you are self-employed, the
same might apply if you build up two or more years of accounts. This is why it’s
vital to check whether you can remortgage without vast early repayment charges –
or at least, how long it will be before you can remortgage without penalty. If
you’re self-employed or your income fluctuates, a self-cert loan could be the
answer
Need to know
- Self-certification mortgages can help the self-employed or people with an irregular income
- You can declare your income without having to back it up with accounts or payslips
- Interest rates are usually 0.5% to 1.5% higher than for conventional mortgages
- Fixed and variable rates as well as flexible features are available
- You may be able to remortgage to a cheaper mainstream deal when circumstances change
Source: Mortgage Advisor & Home Buyer magazine
