> Self Certification Mortgage - UK Guide
In a nutshell
A mortgage for people that find it hard to prove their income.
Best Mortgage For
Self employed people, contract workers, freelancers, people with credit problems, people in changeable employment.
Self certification mortgages come in all shapes and sizes. So, for example, you'll be able to choose from standard product types such as a repayment mortgage or an interest only product. You'll also be able to tap into various deals - i.e. fixed or capped rates, discounted deals, trackers, variable rates etc. Any deal you choose will usually last for between 1-5 years and then you'll switch to a pre-agreed mortgage type such as a variable rate or a tracker.
Typical Amount to borrow
You have some flexibility here as you are responsible for declaring your own income rather than having to prove it with payslips or accounts. So, to a certain extent, you can borrow what you like. Lenders do have controls here (although not all of them will use them) - these will vary from lender to lender and can include looking at your bank statements, running credit checks or asking for verification from your accountant for example.
This will vary from lender to lender and it is possible to pay a minimum 5% deposit or to borrow more in certain cases. Some lenders will increase their controls if you want to borrow more than 75%. You may find that many lenders will ask for a higher deposit here as you are perceived as being a higher risk.
If you're self-employed, have an erratic income or will find it hard to prove your income, then you might not qualify for standard mortgage products. For example, if you're self employed, lenders may ask for up to three years validated accounts before you can access a standard mortgage. This kind of information may be impossible to provide.
So, a self certification mortgage allows you to bypass this rule and simply state your income which your lender partly takes on trust, thus allowing you to take out a mortgage.
What to look out for
Some people have tended to exaggerate their income to borrow higher amounts via a self certification product. Lenders do check your requirements but it is possible to borrow more than you can actually afford which can lead to severe financial difficulties down the line if interest rates rise. So, it's recommended that you are honest here and use your common sense. Some lenders will not actually allow first-time buyers to take out a self certification mortgage or will insist that they put down higher deposits to show their commitment so you'll need to check this out with any lender before you apply.
You may also find that the rates you'll be offered for self certification mortgage in general are not as good as they would be for a standard mortgage. But, if you are able and willing to put down a higher deposit you may be given access to standard rates.
Many flexible mortgage providers are targeting those in need of self certification, so this might be an option for you. It's always worthwhile talking to a mainstream mortgage provider first just to check whether you could meet their criteria and get a standard deal.