If you're not a dead cert, be a self-cert
Special loans for those borrowers who can't prove their income are shaking off their dodgy image, writes Esther Shaw
Sunday 20 February 2005
Accusations, investigations, lies and suspicion have until very recently characterised the world of self-certification mortgages.
Accusations, investigations, lies and suspicion have until very recently characterised the world of self-certification mortgages.
"Self-cert" loans - allowing self-employed borrowers to state their income and rely on their individual credit reference for a mortgage, instead of offering payslips - came under fire recently from critics arguing they were open to exploitation. An undercover television investigation led to claims that, to boost sales and secure commissions, some lenders were encouraging borrowers to overstate their incomes and so secure larger mortgages than they would otherwise have been able to afford.
Although a subsequent review by the City regulator, the Financial Services Authority (FSA), found such practices were not widespread and that controls were generally adequate, a number of lenders and brokers tightened up their act.
"Companies must be seen to be lending responsibly," says David Hollingworth of independent mortgage broker London & Country.
Yet campaigners - notably the Liberal Democrats - remain concerned that irresponsible lenders may still be recommending borrowers make false claims when taking out mortgages, even though the repercussions are severe.
Simon Jones, director of mortgage broker Savills Private Finance, says: "If you are self-employed but know you have a strong income stream, you will need to have a frank conversation with your lender about income and affordability."
It is foolish to lie about how much you earn, he stresses: "It will catch up with you later."
In the first instance, you risk getting saddled with debts beyond your means if interest rates rise and loan repayments become unaffordable. If the housing market plummets, you could also end up in negative equity.
And crucially, it is a criminal offence to lie about your income on a mortgage application.
Today, Britain has more than three million self-employed workers, many of whom will have had trouble getting a mortgage from a conventional high-street lender. Working on short-term contracts, for example, can make it difficult to provide a lender with a history of consistent income.
The market for self-employed applicants is dominated by specialist lending arms of more familiar parent companies. Birmingham Midshires, UCB Home Loans and Mortgage Express, for example, are intermediaries of HBOS, Nationwide building society and Bradford & Bingley respectively
Typically, a self-cert loan will come at a premium - expect to pay an extra 1 per cent compared with a "normal" high-street deal.
"Self-cert lenders are providing a niche product and will command higher margins. This will be reflected in the cost," says Mr Hollingworth. But he urges people not to go down this route without trying the high street first. "Many people who are self-employed think they have no choice but to get a self-cert mortgage. This is not the case."
In particular, contract workers with a regular income stream in a single industry could go straight to their bank.
"If you have a good track record, you may be able to go for a straightforward deal at normal rates," says Mr Hollingworth. Three years' accounts is usually enough for a number of lenders. A big deposit will help too.
This avenue won't be open to everybody, of course. Self-cert mortgages can be the solution for people who have the income but not the evidence to prove it.
This was the position David and Yelda Hancock from Radlett, Herts, were in when they decided to remortgage. The couple, who have two children - Melissa and Joshua - wanted to fund home improve- ments including a playroom.
"The problem is we are both self-employed," says Yelda, a part-time teacher. "Our income varies from month to month. We do have the money but couldn't get up to the size of the loan we wanted to borrow on traditional income multiples."
The couple contacted their broker, who suggested a deal with The Mortgage Works, the specialist lending subsidiary of the Portman building society.
"By switching to a self-certified deal, we have not only freed up some extra cash, we're now making lower mortgage repayments," adds Yelda.
The Hancocks only had to declare their "disposable income" to the lender, but requirements for self-cert will vary. Some lenders will want to see bank account details and references from previous lenders, while others will simply need you to sign an application form.
"If you're self-employed, you'll usually need to prove you've been trading for 12 months," says Mr Hollingworth. "The lender will then want to carry out other checks into your financial history and credit score."
Anyone considering self-cert should shop around for the best offer. One way to do this is through a broker. "The range of self-cert mortgages includes discounts, fixed rates and flexible products," says Mr Hollingworth.
Also in the borrower's favour is that since the furore over self-cert early last year, mortgages have come under regulation by the FSA. This means lenders now have to give homebuyers a clear statement of the full cost of any mortgage - while borrowers have recourse for compensation if they think they have been victims of mis-selling.
"Now that mortgages are regulated, it is vital the figures declared on an application form are realistic," says David Bitner of mortgage adviser Bradford & Bingley. "An applicant needs to be able to justify his or her declaration, as any incorrect figures would amount to fraud."
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
- 1 Moscow voted the world's unfriendliest city
- 2 The excuses your boss is most likely to believe when you call in sick
- 3 I'm pansexual – here are the five biggest misconceptions about my sexuality
- 4 More than 11,000 Icelanders offer to house Syrian refugees to help European crisis
- 5 If these extraordinarily powerful images of a dead Syrian child washed up on a beach don’t change Europe’s attitude to refugees, what will?
Climate change: 2015 will be the hottest year on record 'by a mile', experts say
Senior British politicians tell David Cameron: When dead children are being washed up on beaches, it's time to act
Jeremy Corbyn calls Osama bin Laden's killing a 'tragedy' - but was it taken out of context?
If these extraordinarily powerful images of a dead Syrian child washed up on a beach don’t change Europe’s attitude to refugees, what will?
If you're not already angry about the refugee crisis, here's a history lesson to remind you why you really should be
Theresa May says migrants should be banned from entering the UK unless they have jobs lined up
iJobs Money & Business
£14000 - £16000 per annum: Recruitment Genius: This company was established in...
£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...
£20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...
Voluntary and unpaid, reasonable expenses reimbursable: Reach Volunteering: St...
Day In a Page
The terraces of this two-bedroom penthouse apartment offer panoramic views that stretch over fifty miles from the cliffs of Beachy Head.
In the heart of the coastal village of Mumbles and moments from the pier, this five-bedroom Victorian terrace is set over three floors and retains many original features.
In a sandbanks location, moments from the beach, this three-bedroom apartment has a large open-plan living area and a south-west facing balcony.
This four-bedroom home has an annexe accessed from the side of the house, with potential for improvement and conversion subject to the necessary permissions.
In the heart of the hamlet of Wardley, this five-bedroom period home offers countryside views and a stylish interior, with original features and open fireplaces.
Offering countryside views and landscaped gardens, this three-bedroom Grade II-listed lodge has a spacious conservatory and a large cellar that could serve as a workshop.
Set in approximately 1.5 acres, this four-bedroom home comes with a second, detached property that's currently used as an annexe.
In the hamlet of Newchurch, this former parish church is now a four-bedroom home complete with clock tower and eyrie.
Offering scenic views from a large balcony and sun terrace, this four-bedroom home has a wraparound garden and a heated swimming pool.
Offering views across the Humber and East Yorkshire Wolds from a glass panelled balcony, this four-bedroom barn-style home befits a life of leisure.
This four-bedroom home offers versatile accommodation with annexe potential; features include a hot tub, sauna and Norwegian BBQ hut.
Well-located for schools, colleges and the town centre, this contemporary thatched cottage offers flexible living space with six bedrooms.
Built in 1907, this four-bedroom Edwardian period home has been refurbished by the current owners, retaining many original period features.
Surrounded by landscaped gardens, this five-bedroom home offers living space across three floors.
This lovely country home in Burnham Market is currently run as a popular holiday cottage, with five en suite bedrooms and colourful gardens.
This three-bedroom 17th-century former village bakery is just a few miles from the East Sussex coast.
Set on a landscaped plot, this light and airy four-bedroom home comes with a log burner in the lounge, a fitted kitchen and an open-plan ground-floor layout.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Built on a former chapel site, this impressive four-bedroom home boasts balconies, stunning views and contemporary modern living.
This three-bedroom house is situated in a quiet mews and set over three floors. Features include glazed staircases and high ceilings.
A period townhouse set over four floors, this five-bedroom home was built in the 18th Century and retains many original features.
With five bedrooms, this spacious home offers beautiful gardens and modern interiors - set within the popular market town of Bingley.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This first-floor flat comes with two bedrooms, an impressive open-plan reception room and two lovely roof terraces.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Moored at Taggs Island and reached via a pretty garden, this two-bedroom houseboat has a vaulted reception room and skylit garden studio - currently a beauty salon.
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
A contemporary house spread over three storeys, this three-bedroom detached home has large sliding doors that open out to the River Quaggy.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
This former village bakery, dating back to the 17th century, is now a three-bedroom detached home just a few miles from the East Sussex coast.
On the picturesque Isle of Man, this four-bedroom character home has a ground-floor shop that's currently run as a newsagents and a flat that would make an ideal holiday let.
In a new collection of flats, this first-floor two-bedroom apartment offers ample entertaining space and a prime view of Furze Green from a private balcony.
This three-bedroom stone-built cottage currently trades as the village store with a restaurant in the annexe and family accommodation on the upper floors.
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.