What is a Self-Certification Mortgage?

A self-certification mortgage is a mortgage designed for people who are unable to provide proof of income. This type of mortgage was originally designed for the self employed who historically experienced difficulty obtaining a loan with 'high street' lenders due to not having audited accounts available.

If you are unable to show your earnings due to being self-employed, a seasonal wage earner, or anyone with irregular earnings such as a contract worker or commission-based employee, or in salaried employment with a supplementary source of income, an unsalaried company director, or varying other reasons - a self-certification mortgage could be the best option for you.

Certify Earnings

It allows borrowers to certify their own earnings without having to supply documentation, such as payslips. You declare what your income is but generally you do not need to provide any proof. You can apply if you are employed or self employed. It can also be suitable for professionals who often start on a low salary, but whose incomes can rise rapidly. It has also found favour with salespeople and other workers who receive a high proportion of their income as commission or bonus. Even though you may have achieved high earnings this way for years, commission or bonus may still not be considered in calculations by high street lenders.

A self-certification mortgage is suitable for applicants whose income is not easily verifiable, like the self-employed or those that receive commissions. If you're self-employed, a contractor, have irregular income or multiple jobs, you are probably one of many who know you can afford a mortgage but have difficulty proving your income. They are also quite good for people just starting out in a new career with good steady income and a fair amount of deposit behind them.

It is ideal for self employed people who perhaps have not been in business for the required three years or cannot produce accounts for a three year period but can demonstrate usually through an accountant's reference that they can meet the mortgage payments.

When applying for this type of mortgage you will be required to state your expected annual earnings. The mortgage will be offered on the basis of your likely income rather than you having to provide any documentary evidence.

Deposit

A self-certification mortgage used to require a higher deposit of up to 25%, but now some lenders can offer up to 90% loan to value. Lenders will usually lend up to three and a half times declared income or two and three quarter times joint income. However, with a deposit of 25% or more a self-certification mortgage can usually offer up to five times your declared earnings.

It caries a higher rate than standard mortgages because statistics show most businesses fail within the first two years of trading. So if you were to be left with heavy debt there is a possibility you could lose your home. However, some mortgages are better than others, and, if cash flow is a problem, it's worth checking out those that offer payment holidays and the facility to pay more when you can.

Fortunately there are a number of competitive self-certification mortgage products available, depending on your circumstances and individual requirements. They are now supported by an ever increasing number of mortgage lenders, including mainstream as well as specialist lenders. Interest rates charged are now far more attractive.

It has become increasingly popular in recent years. However, you should always remember that you will be asked your income on the application. Just because you are in a self certification situation, you should only put down your actual income. To do anything else would not only be fraud, but could also mean that you are unable to afford your mortgage repayments, especially if mortgage rates rise in the future.

Bill Stone writes for Direct Online Loans who help homeowners find the best available loans via the www.directonlineloans.co.uk website.

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