What You Need to Know About Self-Certification Mortgages
Self certifying your income is no longer an option
In April 2014 there was a swathe of changes made to all mortgages. For most, these changes had little impact, with only a few additional details being required in order to prove that the mortgage would be affordable, and thus lowering the risk to the mortgage provider. For self-certification mortgages the changes are a lot more significant as in the past little, or no, proof of income was required in order to secure this type of mortgage.
The Bottom Line
Basically the self-certification mortgage is a thing of the past and they are no longer available. The reason that they were removed as an option is because both borrowers and lenders were abusing the scheme because in order to secure a self-certification mortgage little, or no, evidence was required of proof of income because applicants would self-certify that their income was sufficient to cover the cost of mortgage repayments.
There are a lot of websites around offering advice to self-employed people, and also those who are contract workers or those who work on commission. The line that many take is that in order to get a mortgage with a non-standard income stream you will have to go through a specialist broker in order to have any chance of getting a mortgage.
If you're self employed you have to show proof of income
In the end, what it all comes down to is whether you are able to prove your income is what you say it is. Therefore if you have company accounts, or personal financial records, for at least the previous two years that can be used to demonstrate you income, you will be in a reasonably good position to use these to access most of the mortgage deals available to everyone. It is worth noting that some lenders will require three years’ worth of records and occasionally you will find mortgage lenders that will accept one year accounts. In addition to these you could also be asked about the work you have lined up for the future, which is in line with the questions that are asked to those on a standard income stream about any possible changes to income in the future.
There are a number of situations that could help you to get the mortgage you require as these will be seen favourably by a lender. If you have a good track record of maintaining contract work through regular contracts that provide you with a steady income you could use this to your advantage as evidence of a future stable income, particularly if you can show this to be the case for three years or more. If you already have a mortgage and are looking to remortgage, your existing lender could be more likely to provide you with the loan you are asking for as they will have existing evidence of your ability to make repayments. There are also other factors that can be taken into account that will be viewed as reducing the risk of lending to you, such as large amounts of savings.
Contractors and Agency Workers
For many types of contractors and agency workers it can be difficult to provide assurance of future employment. For self-employed people who don’t have at least a years’ worth of accounting history it can also be difficult to meet lender requirements to submit an application. In these cases it is likely that you will need to approach a specialist mortgage broker in order to find out what options are available to you. There are a number of specialist mortgages available for those who are self-employed and contract workers. The recent introduction of additional rights for agency workers means that getting a mortgage is now much easier than it used to be. However it should still be noted that evidence of income will be required for at least 6 months.
Lender calculations vary
This is where you will find the main difference between having a standard income source and being self-employed or a contractor. It is not so much the specific amount you can borrow; rather it is the fact that this amount can vary greatly between lenders as each on uses a different method to calculate how much they will lend you. Some will take into account bonuses and overtime, while others will limit the loan amount to a calculation based on the basic annual income. A good mortgage broker will be able to provide information on the best lender for you to use who can provide the best balance of loan amount to interest rate.