Self Certificate Mortgages – Prove Yourself!

Bank managers are typically the most risk-averse individuals you will encounter. Without proof of a regular salary and a sound financial track record, you may expect a frosty reception when inquiring about borrowing. However, options do exist for those who do not conform to the norm.

If you are self-employed or have an erratic income, you might consider a self-certified mortgage. As the mortgage market has become more flexible and competitive in recent years, the number of lenders offering self-cert mortgages has increased. Once the domain of specialist lenders with strict terms and conditions, self-cert mortgages are now available from most major high street banks and building societies.

The Setup

Lenders typically require a larger deposit for a self-cert mortgage – 25% is common. To prove your earnings, some lenders, such as banks and building societies, will ask for certified accounts for the last three years. They may also require bank statements and conduct credit checks. However, some mortgages are available where the lender only asks for you to verify that you can afford the repayments.

Who is it for?

This type of mortgage is usually aimed at self-employed individuals, but others can benefit as well. People who work overseas, or who earn bonuses not reflected in their salary, may choose to self-certify. Business owners and company directors who receive a minimal salary but have a larger income through dividends, for example, might find self-certification useful. This can be beneficial for tax management but can make obtaining a conventional mortgage more challenging. If you have an erratic income, you may prefer a more flexible mortgage that allows you to adjust your monthly payments according to your current financial situation.

The Drawbacks

The terms for self-cert mortgages may be less favorable compared to other types of mortgages, and lenders may apply Higher Lending Charges or indemnities to protect themselves. The Financial Conduct Authority (FCA) has recently highlighted the troubling trend of some brokers encouraging borrowers to inflate their reported income to secure a larger mortgage. It is important to remember that it is a criminal offense to lie about your income, and overestimating your earnings could result in unaffordable monthly repayments. Failure to meet these repayments could lead to repossession of your home.