Historically, mortgage lenders have required proof of income before they
will lend money for the purchase of a property. This is fine for those
who are employed, but for around 4 million people
in the UK this can create problems, because they are either self-employed,
contract workers, or are paid by way of bonuses or commissions. Mortgage
lenders have not liked to lend money to those who they perceive as being
too high a risk.
The shift towards self employment is continuing to grow, which means more
and more people are facing mortgage lenders without fitting the usual
borrower criteria. Ultimately this has meant that
mortgage lenders who were not willing to lend to the self employed are
losing out on this growing market place.
Primarily the Self Cert Mortgage aims to remove this issue for those who
have found it difficult to prove their income. There is a natural cause
for concern with mortgage lenders lending to those who are self-employed,
and
this
is principally
because a self-employed workers
income is much more likely to fluctuate from month to month, and with this
situation there is a greater chance that repayments will be missed and
the borrower
goes into arrears.
It is more difficult for the self-employed to prove their earnings, since
there is no P60 to show their actual income, and indeed their income may
come from a variety of different sources. In addition
the self-employed face the opposing problems of wanting to show a lower
profit earning through their books for the purposes of reducing their tax
bill, but this will not help when trying to get a mortgage; for this purpose
they need to show a higher profitability showing they have the required
income to make the necessary mortgage repayments.
With a self-certification mortgage, the borrower does not need to prove
their income. They simply make a declaration as to their earnings. Some
lenders may want to obtain documentary evidence, such
as copies of bank statements, or accountants may be contacted.
Although the requirements of different morgage lenders vary, typically
a borrower will be required to put down a deposit of between and 10-15%
of the value of the property. In addition to this, since
the borrower represents a greater risk to the lender, the interest rates
charged will be higher than for other types of mortgage. These are the
main defining differences between a self-certification
mortgage and other mortgages. Other features such a fixed/capped rates,
payments holidays or over payments etc. are all generally still available
for a self-certified mortgage , although these will again vary from lender
to lender, as with other mortgage products.
When calculating how much you can afford to pay monthly
you should take into account any other forms of income to the household,
such as a partner's salary. It is important that you don't
over-estimate how much you can afford to pay back each month. If you
do over-estimate this will greatly increase your chances of defaulting on
the repayments.
You should contact a mortgage adviser to advise you on your particular circumstances. You can
find a mortgage broker in your area by selecting your postcode from the drop-down list below:
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