The way we work has changed radically over the last couple of decades and the idea of having a job for life is long gone. Many workers now rely on tips, commission or bonuses to boost income, and more and more of us are ditching the nine-to-five job in favour of working for ourselves.
But all this can make getting a standard mortgage from a high-street lender hard. Luckily, as the way we work and earn changes, so does the mortgage market: self-certification mortgages are less restrictive than standard mortgages and are becoming cheaper too.
The self-cert market has grown because it has responded to the changing needs of the consumer, says Jeff Knight, director of marketing at specialist lender GMAC-RFC. Firstly, we have seen an increase in the number of people going self-employed and this trend will only continue, given that all political parties encourage such a thing.
We have also seen a growth in the number of people having more than one job, and for many of these people they are employed by day and self-employed by night a sort of Clark Kent if you like!
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What is a self-certification mortgage?
Self-cert mortgages allow you to self-declare what you earn to a mortgage lender. They came into existence about 10 years ago and were originally aimed at self-employed and small business people who had not been in business long enough to provide the traditional evidence of three years income.
Are they just for the self-employed?
No. Anybody who has an irregular income, for example, those with seasonal jobs, or people who get a high proportion of their income through commission, can apply for a self-cert mortgage.
Weve seen a number of people working part-time, many of these working from home, and more and more people working on a contract basis too, says Knight. And many people now have income from many different sources such as buy-to-let properties.
How do they work?
Usually all you need to do is to state how much you earn on the mortgage application form. You wont be asked for any proof of this, but you may have to provide business bank statements so the lender can look at the gross income you have received. Borrowers will need to supply a declaration of income, go through credit history checks, show details of being on the electoral roll and provide proof of ID, explains Jeremy Mears, marketing manager at Cheshire Building Society.
If you are already a homeowner you may also be asked to supply your mortgage statements. There may be some restrictions on how long you have been self-employed. For example, Cheshire requires you to have been self-employed for a year.
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Do they differ from standard mortgages?
Only in that you may have to put down a larger deposit or pay a higher interest rate. Typically, lenders require a deposit of between 75 and 85 per cent of the value of the property, though there are some lenders such as Amber HomeLoans, BM Solutions, Mortgage Express and The Mortgage Works that loan up to 90 per cent loan to value (LTV). Also, interest rates may be a little higher than on a standard mortgage.
Can I lie about my income to get a bigger mortgage?
It is a criminal offence to lie about your income when applying for a mortgage and rumours were rife a few years ago that mortgage advisers were encouraging borrowers to do just that to enable them to borrow large amounts. The Financial Services Authority (FSA) carried out a review of self-cert mortgages following these allegations. The review examined what controls major lenders have in place to prevent mortgage application fraud arising from borrowers lying about income. It showed that lenders controls are generally appropriate.
Mortgages are underwritten and checks are in place to ensure any application is reasonable, says Mears. We then contact the applicants accountant and research their company through Companies House and other such sources.
There are two consequences of bending the rules; the first is if you are found out you may get a criminal record; the second is that you may have over-stretched yourself financially and will be unable to keep up repayments if interest rates rise.
What deals are available?
Self-cert mortgage interest rates tend to be a bit higher than standard rates. For example, as we went to press best-buy rates for self-cert mortgages were 4.92 per cent from Standard Life Bank, 5.34 per cent from Giraffe Money and 5.39 per cent from Bristol & West. All rates are fixed for two years. By comparison, best-buy two-year fixed rates on standard mortgages were 4.69 per cent from Stroud & Swindon Building Society and 4.84 per cent from Alliance & Leicester.
Some lenders including Cheshire Building Society, Coventry Building Society, Kent Reliance Building Society, Manchester Building Society and Money Partners only lend to the self-employed. Others Amber Home Loans, Bank of Ireland Mortgages and Coventry Building Society will only lend to second-time buyers.
Fast-track mortgages are also available for people who want a speedy service, but do not have the paperwork on hand to confirm their income. Anyone offered a fast-track mortgage is likely to be offered a standard deal, so there is no premium to pay, but borrowers usually have to put down between 15 and 25 per cent deposit.
Many lenders will fast-track at up to 75 or 85 per cent loan to value, which means that fluctuating commissions, bonuses and overtime can be taken into account, explains Cath Hearnden, director of mortgage advisers My Mortgage Direct. This means that applicants can declare all their income for their mortgage rather than the income which appears every month on a payslip.
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Where do I go to get a self-cert mortgage?
If you know what you are looking for, some mortgages are available direct from the lender. But many products are available through intermediaries only, so it makes sense to talk to a mortgage broker as he or she will have access to a wide range of mortgages, including exclusive deals that may not be available on the high street.
Many applicants think that they need a self-certification mortgage when in actual fact they fit criteria for mainstream products, explains Cath Hearnden. Others may approach one lender when another lender would be more suited to their circumstances. It is a brokers job to ask the right questions and gather enough information to be able to place the applicants mortgage in the correct way, she says.
It is also the responsibility of the broker to be satisfied that an applicant can afford a potential mortgage commitment and advise accordingly, explains Hearnden.
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