The Retracting Self-Certification Mortgage Market

Once upon a time self-employed workers found it nearly impossible to get a mortgage unless they had an enormous deposit and a large income from their business activities that spanned many years. Those times may be about to return as lenders are pulling their self-certification mortgage products from the market as if they are tainted beef.

Many years ago lenders had strict criterion regarding who they would lend money to and the circumstances under which home loans would be approved. Life was simpler then as the great majority of the workforce had steady employment, a salary or wage, and monthly payslips.

However, as time went by the workforce slowly evolved into a mix of employed and self-employed workers, business owners, investors, and freelancers. Although a large portion of the workforce remained employed, a significant portion of those workers began to receive bonuses and commissions instead of a salary. This created uncertainty regarding their monthly incomes. Additionally, many other workers became self-employed and others became proprietors of small businesses which provided their daily bread.

Finding a standard employee with a steady, provable and predictable salary was no longer easy. This meant that traditional mortgage products were no longer applicable to a large portion of the workforce so lenders were forced to invent a new type of home loan to ensure they could keep on lending.

Enter the self-certification mortgage. A product originally designed for self-employed workers who did not receive a pay slip from their boss each month. Instead these workers contracted out their services to business that would pay them by the hour, or they ran their own small businesses and billed their clients when their work was done. Many self-employed individuals who worked in this manner had high levels of income so it seemed ludicrous that they should be excluded from the mortgage market.

Self-certification mortgage products were therefore launched onto the mortgage market with the best intentions - to satisfy the needs of self-employed individuals who lenders believed could service the loans. Unfortunately, due to lax lending rules, self-certs were also approved to people with low incomes who simply lied on their application forms about how much they earned. In addition to this, many lenders reduced their required deposit levels, meaning that people with little or no savings could also apply for a self-certification mortgage.

Because of this, great sums of money were loaned to people who should not have been approved for a mortgage. Mortgage brokers and borrowers alike took advantage of the lethal combination of low deposit requirements and not having to prove earnings to the lenders. Self-certification mortgage products are now being squarely blamed for much of the damage that has occurred via the global credit crunch. As a result lenders have pulled hundred of self-cert products from the market and are refusing to lend to anyone on a first-time-buyer basis.

For existing home owners looking to remortgage, lenders have reverted to the stricter criteria that were attached to self-certification mortgages in the first place. These include low loan-to-value ratios and proof that applicants are truly self-employed. Perhaps the lenders had it right in the beginning.

Get in touch with an independent Mortgage Broker for impartial advice on your next mortgage today at http://www.ukmortgagesource.co.uk through our online form

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Self-Certification Mortgages Explained

With the uncertainty of the job market in the UK today, more and more people are turning to working for themselves. While this can be a positive step in that it means you don't answer to anyone but yourself, it can also open up another set of problems. The biggest problem faced can be getting a mortgage - with no fixed income or payslip, it's more difficult to be accepted. This can be overcome, however, with a self-certification mortgage.

The good news is that more lenders are opening their eyes to the self-employed market, although that shouldn't come as a surprise, with 14% of the UK being self-employed. Despite this, it's only in the last few years that lenders have come up with self-certification mortgages. If you're self-employed and you want to buy a house, it's worth knowing what's involved and what type of mortgage you can have.

The Differences

The main difference between a standard mortgage and a self-certification one is obviously income, or lack of it. Whereas in a full-time job you have a steady income and either a weekly or monthly payslip, when you're self-employed this changes drastically. Depending on your profession, you could go weeks or even months without any kind of income.

This is where lenders traditionally get "nervous" - because you can't guarantee what earnings you'll have in any given week, there's the chance that this could affect your ability to pay your mortgage. Because of this, there's less chance of being approved for one - or there was, before elf-certification mortgages.

The main difference with these is that you're approved on what you expect to earn, as opposed to physical proof. However, lenders will still want to see some kind of proof of what your average income will be - this could be via an accountant if you have one, or invoices and bank statements for the last three years. Although if you can provide details of your income for three years or more, you might even be eligible for a more traditional mortgage.

The Disadvantages

Although they can help self-employed people buy a home, a self-certification mortgage does have a few downsides when compared to a normal mortgage. Much like a bad credit mortgage, it usually involves a higher interest rate, due to you being seen as a potentially bad risk (even if you're earning over six figures a year). This is especially true if you've been trading less than 2 years, when most businesses traditionally fail.

Another disadvantage is that there are still a limited amount of lenders willing to provide these types of mortgage at the moment, compared to the hundreds of lenders for traditional mortgages. On top of this, you'll probably have to pay a higher deposit - unlike the typical 5% down on a normal mortgage, you can expect to pay as much as 25% of the cost of the house as your deposit.

Despite this, self-certification mortgages are an excellent option for anyone struggling to buy a house because they're self-employed. With many even offering an option where you can defer payments until your own invoices are paid, they're ideal for those where income isn't guaranteed to be on time.

Visit http://www.ukmortgagesource.co.uk for up-to-date information on Self-Certification Mortgages and other types of UK Mortgages

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