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Self-certification mortgages ("Self-cert mortgages"), also commonly referred to as non-status mortgages, are most commonly used by the self-employed and have become popular in recent years, as more people have become self-employed. Self-cert mortgages are specifically designed for people whose income is difficult to assess using the normal practices adopted by most conventional mortgage lenders. Self-cert mortgages allow you to declare (i.e. self certify) your income without providing the documentary evidence usually required for a mortgage.
As well as the self-employed, self-cert mortgages may also be applicable to other categories of person. These will include: employees on short-term or part time contracts; employees who depend upon bonuses or commission for a significant proportion of their income; unsalaried company directors; and low wage earners with other income or material assets upon which they rely for future payment.
Irregular work patterns, lack of accounting records, bonuses, commission and other seasonal pay can cause difficult in guaranteeing the income necessary to secure a conventional mortgage. With self-cert mortgages there is no need to supply employer statements, accounts, bank statements or any other proof of income. Instead the self-cert mortgage lender will take up bank and lender references, credit checks, solicitors' confirmation of previous ownership and landlord's reference.
With little or no adverse credit, the interest rate on self-cert mortgages is likely to be a little higher than normal rates. This reflects the lender's extra risk and costs involved in self-cert mortgages. Typically deposits in the region of 20% of the loan value are required but some self-cert mortgages are available for up to 90% loan to value.
Better mortgage rates are available to self-employed who can demonstrate consistent past and expected income levels. For the self-employed, mortgage loans based on an income multiple (normally 3 to 3.5x's) of taxable income may be available for up to 100% of the loan value with 2 years of accounts. The interest premium on a self-cert mortgage may also be eliminated by others who can show they are a low risk case (e.g. those who have a good credit history, can show a consistent level of regular income, have the bank statements to prove it etc.).
All types of self-cert mortgages (Variable Rates, Fixed Rates, Capped, Discount Mortgages etc.) are available.
Flexible self-cert mortgages are well suited to the self-employed and others with irregular income. Flexible self-cert mortgages allow those who expect to receive lump sums over the mortgage period to use those lump sums to repay all or part of the mortgage early. They also allow underpayments and payment holidays and even flexibility to draw down additional amounts for those times when income is not so forthcoming.
Many self-cert mortgage lenders only accept business through authorised brokers. This is because the broker will carry out the extra administration that would otherwise required of this type of mortgage.
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