Life is getting more complicated all the time and this is reflected by peoples personal finances.
More people than ever have two or more sources of income. Some even rely on performance or Christmas bonuses, which often constitute 50 per cent or more of their salary, which some mortgage lenders will not take into account when judging affordability. Many people are cutting loose completely and launch into businesses on their own.
However, without the essential paperwork that proves you can fund mortgage repayments, you will probably have to consider a self-cert mortgage. But if you are self-employed and have three or more years worth of accounts and a clean credit record, your mortgage application should be a straightforward affair. You will be treated the same way as any other salary earner on a payroll by a large number of lenders.
Self-certification mortgages
Self-certification mortgages are not always ideal because once you have been accepted, the criteria on these loans are very strict.
Borrowers are expected to put down much bigger deposits for self-cert loans, sometimes between 20 and 40 per cent of the mortgage because the borrower is covering some of the lenders risk. Interest rates are also sometimes higher for these loans.
Alan Lakey, partner at IFA, Highclere Financial Services, says: The Bank of Ireland, for example, can add 0.3 per cent to its self-cert products.
However, Council of Mortgage Lenders (CML) figures suggest that these measures are protecting people from the temptation to, for example, declare yourself a millionaire or simply overstretch yourself into a mortgage that will cause you problems later on. We know this because there is little difference between the level of repossessions of self-cert mortgages and standard mortgages. In fact, arrears for both are at a 20-year low.
Employed self-certification
But, as mentioned before, self-cert mortgages are not just restricted to the self-employed.
And even if you have been self-employed for three years or more, a self-cert option could still be a good option, says Duncan Pownall, mortgage development manager at Bradford & Bingley.
It is likely that your accounts will be arranged so that you pay the least tax possible. This is achieved by recording everything down to the paper you use as tax-deductible which in turn means that your net income the figure that lenders go on will appear much lower than the money you actually have. So you could actually earn double what is declared on your accounts.
But what you gain through lower tax payouts you lose on affordability. People with several jobs may also want to apply for a self-cert mortgage because standard mortgage lenders may not be willing to make each job count towards the borrowers affordability score.
The best deals?
There are over 32 high street lenders and specialist lenders offering self-cert loans, according to Moneyfacts magazine, so choice shouldnt be a problem.
Because applying for these loans can be slightly more complex, many self-certifiers choose to enlist the help of a mortgage broker or an IFA (Independent Financial Adviser). But be careful. Some less scrupulous brokers may try to charge you twice the first time for the advice and then another bigger percentage-based fee to find the loan. Bear in mind the fact that there are plenty of independent brokers who can find you a good deal and take commission from the lender with no cost to you. (See contact box, right, for details.)
If you feel confident finding your own mortgage, West Bromwich Building Society is a good place to start. Our entire range of products are open to the self-employed on a self-cert basis at a 75 per cent loan to value, says Richard Early, risk assessor at the building society. However, we do not allow the employed to self-certify. The society is offering a two-year discount mortgage at 1.85 per cent off the SVR (currently payable at 4.94 per cent), which comes with a £395 arrangement fee. Alternatively, The Mortgage Works a subsidiary of the Portman Building Society allows both the self-employed and employed to self-certify. Still at a 75 per cent LTV, the lender is currently offering a two-year fix at 4.99 per cent with a £395 arrangement fee.
