Self Certification Mortgages

 

The credit crunch gets blamed for a lot of things, but it is fascinating to see what has been going on in the self certification market.

 

Self Certification, in case you don’t know is telling a lender what your salary is without having to prove it. Over the last few years, it has developed from a niche based product to highly touted favourite of equally desperate brokers and lenders.

 

Historically, “self cert” was where self employed people with highly fluctuating income, could get round the need to produce three years audited accounts or physical proof of their tax assessment before lenders would lend. They simply told the lender what they were earning and in the higher lending amounts, their accountant signed off to the fact they could afford the payments. Voila up to 85% loan to value.

 

But then lots of greedy people got on the bandwagon. Employees could certify their irregular commission or bonuses and borrow 5 or more times their salary. With some lenders, they just made a quick call to the place of work, checked your job title and job done.

 

Some lenders would lend clients with unlimited arrears on their current mortgage up to 75% of their home value with full self cert. Can you guess their name?

 

The regulator warned brokers that if they lied about clients’ income they faced being struck off or disciplined, which did not have a huge effect, but the credit crunch and inter bank lending has absolutely changed this sector.

 

Personally, I think it is a shame, the traditional self cert is a very important aspect of funding for small business people. Let’s face it, these people should be living in the best houses so that they can pledge them to the bank when they get the jitters about their trading businesses.

 

I also think that lenders have over-reacted and will calm down in die course. There are still a number of schemes working on self cert basis, albeit on reduced total loans and a much smaller number of lenders. Expect a tougher ride on underwriting, more delays and tell your IFA absolutely the truth about your income. If he offers to fudge the numbers, walk away- he really doesn’t value his licence. Of the few self cert lenders left they do vary markedly on their income multiples and affordability calculations. Some lenders will lend on a multiple of your profits, share of profit, earnings; some on your affordable income.

 

There may be other ways to legitimately increase your net profit, consider car allowances under the fixed cost car scheme to increase net income or pension contributions to increase gross emoluments. Think dividend instead of schedule D for a period if you are a company director.

 

There is no doubt that there are buying opportunities coming in the housing market, but it is not for the faint of heart- so business people will want to take advantage. My message- think outside the box, use all of the available products, but do not buy it if you can’t afford it. IT REALLY IS AT RISK IF YOU CAN’T KEEP UP THE PAYMENTS, however you got the mortgage.