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Use our UK Finance guide and learn by experience. We outline pitfalls so that you don't have to learn the hard way, as many of us often do.

Mortgage

Self certification mortgages

A Self certification mortgage could be the answer if you are self-employed or your income fluctuates

Mortgage applications are normally approved on the basis of long-term and regular income. If you have an irregular income you may not qualify for a conventional mortgage. This is where self-certification mortgages can help. Self certification mortgages are for people whose income is difficult to assess using the conventional methods. Self certification mortgages allow you to declare your income without the conventional ways to back it up e.g. accounts and payslips. The decision on whether or not to lend to you will be based on how confident the lender is that you will be able to repay the mortgage.

The Process

You may have to consider a self-cert mortgage if you:

  • Are self-employed
  • Get a large proportion of your income from commissions or overtime
  • Work on a contractual basis
  • Work part-time or irregular hours
  • Have numerous strands of income

Rely on bonuses as opposed to your normal wage In other words, if it's normal for your income to fluctuate, this could be misleading on a conventional mortgage application and may even be rejected. With a self-cert mortgage, you make a signed declaration of your income. The amount you borrow will be based on this. The lender will then make extensive credit checks and possibly look at bank and lender references, confirmation of previous ownership from solicitors and landlords' references. If you're self-employed, don't assume that you can only choose a self-cert mortgage, however. Many lenders have relaxed their lending criteria, enabling you to avoid the sizeable fees and early repayment charges that can make self-cert mortgages expensive.

The costs involved

UK Self certification mortgages represent a slightly higher risk for lenders so interest rates are higher than for conventional mortgages. However, rates have come down in the past few years to reflect the fact that increasing numbers of people have varying incomes and more lenders are coming into the market with new and improved deals. Self-certs are normally 0.5% to 1.5% above mainstream rates. However, you still need to make sure that you can afford the repayments, whatever happens to interest rates. It's this aspect of affordability that the lender will be scrutinising when deciding whether or not you are a suitable applicant for a loan.

What type of mortgage

As with conventional mortgages, self-cert mortgages can have fixed or variable rates and flexible features. These may suit you for different reasons: People with newer businesses may struggle to deal with unexpected rises in mortgage rates, so a fixed mortgage can be excellent value

If the business is more established, a variable tracker rate might be more appropriate, as it will allow payments to fall if the base rate does. However, the borrower should have a cushion of earnings should rates rise

Flexible rates allow contract workers to overpay in good times and underpay at others, as well as take advantage of payment holidays

Remortgage

Just because you start off with a self-cert mortgage it doesn't mean you'll always have to have one. If circumstances change and you can prove a full income, it's easy to move to a mainstream product. If you are self-employed, the same might apply if you build up two or more years of accounts. This is why it's vital to check whether you can remortgage without vast early repayment charges ¬or at least, how long it will be before you can remortgage without penalty.

Need to know

  • Self-certification mortgages can help the self ¬employed or people with an irregular income
  • You can declare your income without having to back it up with accounts or payslips
  • Interest rates are usually 0.5% to 1.5% higher than for conventional mortgages
  • Fixed and variable rates as well as flexible features are available
  • You may be able to remortgage to a cheaper mainstream deal when circumstances change.

 

Browse our UK mortgage guide

For most of us, buying a property will be one of the biggest decisions and purchases in our lives. Choosing the right mortgage deserves serious attention and planning.

With the collaboration of financial advisors we have put together a comprehensive guide to mortgaging in the UK. This guide will help you to find the right mortgage for you and put you on the right path to understanding what type of mortgage you will need.

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