There remains a handful of unscrupulous mortgage brokers peddling self-cert mortgages. Even now, over a decade after their demise, buyers ask for mortgages with self-certification.
The truth is, mortgages with self-certification simply no longer exist. Following the financial crises of the late noughties, the FCA outlawed them.
In our opinion, that’s a good thing for self-employed homeowners. Not convinced? Let me show you why choosing a bona fide mortgage with a specialist broker is a better option.
The death knell for self-cert mortgages
The Financial Services Authority (now the FCA) called time on self-cert back in 2009. Yet if you Google ‘self-cert mortgages’, you’ll get pages of websites still offering them.
Why neither the FCA nor Google are working to stop this unscrupulous advertising is beyond me. Even then, they earned the term “liar loans”, as apt a description as you’ll find!
They were called #LiarLoans for a reason.
— SelfEmployedMortgage (@semortgages) August 20, 2020
Let’s get things straight: it’s a scam, nothing more, the bait to get you to visit their website. I guarantee, whatever mortgage they eventually offer you will need official income validation.
Since ‘Responsible Lending Guidelines‘ came into force, lenders must validate income for all applicants:
A firm must undertake a reasonable assessment of the creditworthiness of a customer before:
- entering into a regulated credit agreement; or
- significantly increasing the amount of credit provided under a regulated credit agreement; or
- significantly increasing a credit limit for running-account credit under a regulated credit agreement.
Self-certification, therefore, falls outside the bounds of accredited lending. And with investments as sizeable as mortgages, sticking with FCA-accredited brokers/lenders is essential. So don’t fall into the trap these dubious brokers or finance management companies set.
So why does the term self-cert still attract so much attention?
Even before the Credit Crunch and its aftermath, self-cert mortgages were a bit of a con. Advisors would tell self-employed people that this was the best (or “only”) way to get a mortgage. And the lack of regulation around these mortgages almost guaranteed applicants’ acceptance.
But because of the implicit ‘risk’, interest rates were much higher for self-cert. The clients, unwitting sole traders and even contractors, were just happy with an offer. And with higher rates, both the advisor and lender earned more from the transaction.
Everybody happy, though, right?
Savings with a bona fide certified mortgage: off the chart
Self-cert did satisfy everyone, but it never should have been the case. So entrenched was self-cert in the market, independents never stopped to consider better options.
Advisors and lenders weren’t going to forego the higher rates, were they? And self-certifying income was such an easy way to buy a home compared to a more meticulous approach.
But, yes: there were better options for freelancers, contractors and directors, even then.
A handful of specialist mortgage brokers like us had access to preferential underwriting terms. Likewise, several high street lenders used a common sense approach to assessing self-employed affordability.
The fact is, we were fighting a losing battle against the ‘easy option’. Many have fond memories of self-cert mortgages, hence its longevity in the homebuyers’ minds…
…but if they saw how much they’ve had the potential to save over the years with a bespoke mortgage? Chances are, search engines would have committed the term to its archives long ago.
Are there alternatives to self-certification for self-employed people?
The best alternative will depend upon the type of self-employed payment structure you use. We have pages devoted to different income models for self-employed professionals.
Each outlines the optimal route, based on your status (sole trader, freelancer, contractor, etc.). But before you head there, do take a moment to read why the High Street is rarely the best option.
The problem with applying to your bank or mutual society direct
A trip to your local high street bank or mutual society is fraught with disaster. Many in-branch advisors request three years’ worth of self-employed accounts. They’ll often want to see an upward trend in profit over those years, too.
**Since the COVID-19 pandemic, lenders have become acutely aware of risk. The industry in which you trade/offer your service is also key to their offer/decision. See our upcoming post for details.**
But even before the new, dynamic criteria, many self employed people will know what I mean. If you’ve applied to a bank or building society direct, you know first-hand the barriers you face.
This lack of understanding on the lender’s part has fuelled misconception. Business owners convince themselves that they will struggle to secure a mortgage. Whether sole trader or company director, you can access the many alternative solutions.
Outdated lending criteria and blinkered vision
The main reason for the difficulties lies with the bank branch staff and the criteria they use. Rather than assess each applicant’s payment structure, they pigeonhole all self-employed.
Company directors, sole traders, freelancers, IT contractors: they all go into the same pot! Yet their risk profiles are poles apart, making a mockery of traditional affordability criteria.
Whereas in reality, the self-employed are no more risk than PAYE applicants. They can access the same spectrum of mortgage products as salaried workers.
Work with a self-employed mortgage specialist who understands your income
The key is to work with a mortgage specialist able to highlight the profits in your income. A bespoke broker can prove your income covers the repayments for the loan for which you are applying.
Often, ‘proof’ means providing at least 1-to-2 years’ accounts—or tax returns—for our lenders. Three years’ worth of documents can often mean overkill, even misinterpretation. Earlier years’ figures may not reflect your business or market as it stands today.
Even as we emerge from the pandemic, workers in the right industry only need one year’s accounts!
Imagine you’re a (locum) doctor or health professional right now. You are so in demand, lenders can only take that as a positive! On the flip side, if you’re working in retail, the omens aren’t so great. These are the criteria lenders are looking at in this post-lockdown world!
Self-employed workers should take impartial, expert advice on getting the best possible mortgage deal. That’s where we come in.
Our specialist advisors can help find the mortgage solution most relevant to your status. Using your recent accounts (or contract), we’ll work out your potential borrowing ceiling.
We are a 100% accredited, independent (whole of market) and operational specialist mortgage broker. Call us on 0208 421 7994 or Request a Callback to talk through your enquiry at a time that suits you. The consultation is free, with no obligation on your part to commit there and then.
Chances are, we will get you a mortgage based on your true affordability at a great rate. When we do, it will convince you, as it has us, that the withdrawing of self-cert is a positive move!