Self-Cert Mortgages
Mortgage lenders
tend to approve mortgage applications on the basis of
long-term and regular income, usually with at least three
years of payslips. If you run your own business you may be
able to show three years of accounts instead but if you're
newly self-employed or have an irregular income that
relies on bonuses or commissions, you may struggle to get
a conventional mortgage. This is where self-certification
mortgages can come to your aid.
Self-cert mortgages are for people whose income is
difficult to assess using the usual methods outlined
above. They allow you to declare your income without
accounts to back them up. The decision on whether or not
to lend to you will be based on how confident the lender
is in your ability 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 just your normal
salary
In other words, if it is quite normal for your income
to fluctuate, this could look misleading on a conventional
mortgage application and lead to it being 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,
solicitor's confirmation of previous ownership and
landlords' references.
If you are self-employed, don't automatically assume that
you can only choose a self-cert mortgage. Many lenders
have relaxed their lending criteria, enabling you to avoid
the sizeable fees and redemption penalties that can make
self-cert mortgages expensive.
Costs
Self-cert
mortgages represent a higher risk for the mortgage lender
so the interest rate will obviously be higher than a
conventional mortgage to cover this. It is true that rates
have come down in the past few years to reflect the fact
that more and more people have varying incomes and more
lenders are coming into the market.
However, you still need to make sure you can afford the
repayments no matter what happens to interest rates. It is
this aspect of affordability that the lender will be
scrutinising when deciding whether or not you are a
suitable applicant for a self-cert loan.
What
type of mortgage?
As with
conventional mortgages, self-cert mortgages can
have fixed, variable or flexible rates, but they may suit
you
for different reasons:
People with newer businesses may struggle to deal with
unexpected rises in mortgage rates so in these
circumstances 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 reduces. However, the borrower
should have a cushion of earnings should rates rise
Flexible rates will allow contract workers to overpay in
good times and underpay at others, as well as take
advantage of payment holidays if they want to expand the
business, for example
Remortgage
just
because you start off with a self-cert mortgage it doesn't
mean you'll always have to have one. If you have
poor credit history, making regular payments to a
self-cert mortgage can effectively 'repair' your credit
rating for the future and allow you to
remortgage to a more conventional product. The same would
apply if you built up three or more
years of accounts from your own business.
This is why it's vital to check whether you can remortgage
without vast redemption charges - or at least, how long it
will be before you can remortgage without penalty.
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