What should I do if I am unable to prove my income or if I have had previous credit problems?

It used to be the case that, if you were unable to prove your income or had a poor credit history, then it was almost impossible to get a mortgage. However, things have changed in recent years and there are now a plethora of new mortgage deals on the market that are designed specifically for this type of applicant.

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It used to be the case that, if you were unable to prove your income or had a poor credit history, then it was almost impossible to get a mortgage. However, things have changed in recent years and there are now a plethora of new mortgage deals on the market that are designed specifically for this type of applicant.

Broadly speaking these mortgage products fall into two categories - those that are designed for the self-employed or contract workers where the traditional proof of income is not available and those aimed at the borrower who has had previous credit problems, be it mortgage arrears, county court judgements or even bankruptcy. However, before you rush off to talk to these specialist lenders let me make some suggestions as to how you might successfully obtain a more traditional mortgage.

All lenders, whether they are the conventional high street banks and building societies or the more specialist lenders are involved in the assessment of risk. What they all need to be convinced of is that the borrower will maintain the mortgage payments in a satisfactory manner and that the mortgage debt will be repaid in accordance with the terms of the mortgage. They also need to be sure that if the worst happens and the mortgage falls into arrears they can recover the full mortgage debt by the repossession and sale of the property. Because the assessment of risk is not a scientific process it is sometimes possible to negotiate with lenders and to get them to offer a mortgage even when the individuals circumstances do not match their laid down guidelines. Indeed it is my experience that it is sometimes down to the individual approach of the underwriter rather than the written rules of the lending company. I have known one building society branch turn an applicant down whereas the same approach to a different branch has received a positive outcome.

So, how can you best use this to your advantage? Well first of all it is worth spending some time putting your case together so that you are presenting your application in the most positive light. Remember, if you are to persuade an underwriter to bend their rules a little you will need to give that underwriter something that he or she can use to justify their decision if they need to do so at some time in the future. For example, you may have a County Court Judgement that was issued due to a dispute over faulty goods rather than a simple refusal to pay. If this is the case and you have supporting correspondence to back this up then you could provide copies of that correspondence with your application. You may have mortgage arrears that were the result of a particular short-term difficulty that is unlikely to re-occur. If the new lender can see that you acted responsibly and kept the previous lender notified of the situation throughout the difficult period then he is likely to respond positively to that. If proof of income is the difficulty then you will need to convince the new lender that you can afford to meet the new repayments so it could be worth showing bank statements or any other information that can back up your claim.

If you feel that this is too involved or you are still experiencing resistance from the lenders you approach it may be profitable to talk to a mortgage broker who can put your case to the lenders on your behalf. An experienced mortgage broker will know which lenders are most likely to be sympathetic and in addition will have close relationships with a number of lenders - this means that in effect he or she will have 'buying power' simply because of the volume of business they are controlling. You would be surprised how valuable this can be in persuading a lender to relax their rules a little.

Don't assume that this approach will work in every case. There are some borrowers where the problem is too serious to be overcome by simple persuasion and if you fall into this category and have no success at all with the traditional lenders then you will need to consider a mortgage from one of the more specialist lenders. However, if you resort to this approach you should be aware that you will probably not be offered the best mortgage rates available. Whilst there may be some reasonably competitive deals available for the self employed, if you have a string of County Court Judgements or have been seriously in arrears in the past then you should expect to pay a premium over the usual standard mortgage rate. If you do go down this route, however, there are a number of points that you need to watch out for. First, find out how long you will be tied into the lender in question. If you can develop a record of paying the mortgage on time then you are re-establishing your credit worthiness and may be able to get a more competitive mortgage from a traditional lender in a couple of years time. If this happens you don't want to find that cannot move to another lender because you are tied up with redemption penalties for years ahead. Secondly, you should find out if the lender operates a 'dual charging' policy. This means that if you miss a payment or get into difficulty with the new mortgage they can load the interest rate to penalise you. This practice has been condemned as unfair by the Office of Fair Trading and has largely been withdrawn by the more reputable lenders. However, it is still worth asking the question. The third thing to ask is what fees are involved in obtaining the mortgage. This is particularly important if you are using a broker to arrange the mortgage for you. Whilst you can expect to pay an arrangement fee to the lender and possibly a fee to the broker I would only normally expect this fee to be levied upon successful completion of the mortgage. If you are asked to pay fees up front you should be particularly wary.

If you are self-employed there are several options open to you. A number of lenders have now relaxed their rules with regard to the proof of income needed and the traditional method of proof (3 years audited accounts) has been dispensed with. Some lenders will allow you to simply 'self-certify' your income on the application form or your accountant may simply be required to provide a certificate detailing your income. Other lenders will not even need you to tell them your income but will rely on your previous credit history as proof of your ability to pay. Again, in these circumstances it is often worth talking to a mortgage broker who can point you in the right direction depending on your precise circumstances.

Later in this guide you will find a list of useful contacts for both 'adverse credit' mortgages and mortgages for the self-employed.

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