In recent years, there has been an increasing trend of more people entering the field of self-employment. Although there are numerous benefits to self-employment, many potential borrowers have encountered problems when seeking to buy a home. Many of the self- employed have difficulties providing a sound proof of income required by most conventional mortgage lenders. Some analysts suggest that this may be in part due to the fluctuations in their earnings.
Standard mortgage lenders tend to be quite cautious of anyone who cannot prove their earnings through pay slips and other conventional documentation. One mortgage that remedies these self certification hindrances is the Self-Certification Mortgage. Often referred to as a non-status mortgage, this type of mortgage caters to the employed, self employed, first time buyers, and people with a bad credit history.
Self certification mortgages are intended for people whose income is difficult to assess. If you work for yourself, you cannot rely on a regular salary, pay slips or a P60 to prove your income. With a self-certification mortgage, you declare what you earn and the lender will loan an appropriate amount. You just sign a declaration that says that the loan repayments are affordable. You may have to ask an accountant to endorse your statement.
What Lenders Check
Some lenders will not carry out any status related checks. It can suit potential borrowers who have a poor credit record or would normally have difficulty proving their earnings. It is important to note that this can affect the overall pricing and terms of the mortgage. Although a credit reference check is usually still carried out, most lenders will reflect the increase in risk attached to non-status lending by limiting the mortgage to 85% of the property's value.
Interest
Due to the greater risk, self certification mortgage lenders have traditionally charged higher interest rates than the conventional mortgage lenders. It is important to find the best interest rate to meet your financial needs. Self certification mortgages are available with a variety of interest rate options that include tracker rates, capped rates, fixed rates, capped rates, discount rates… etc.
Deposits
A typical deposit is 15% although lower rates are available to borrowers that can put down a 25% deposit. The minimum deposit required for a self certification mortgage is 10% although only a small number of lenders provide a 90% self certification mortgage.
Charges
With a self-certification mortgage you will pay the valuation fee, legal fees and possibly the lender’s arrangement fee. If you are unable to put down a large enough deposit, lenders may charge an indemnity premium. This protects them if you default on the mortgage.
Considerations
If you have any doubt that you will not be able to make future repayments, a self certification mortgage may be risky. It would be wise to consult with a mortgage specialist before taking out a self certification mortgage. A specialist will advise you of your best mortgage options.
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