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Essence of Self Certified Mortgages
Your search for a mortgage isn't leading results.
Check for any impediments. May be the lenders dread offering credit on the grounds that you are self employed.
But are you alone in the pursuit? No. The statistics put the figure of self employed people at around three million. Add to this the people who are working freelance and those working as temporary hires. They too are denied mortgages on the same grounds as a self employed.
If the mortgage companies continue with this step motherly attitude towards such a vast group of population, it is not late when they lose plenty of their business.
And what are the grounds for such denial. The most basic reason is that these persons do not have a stable income. The self employed persons, for instance, earn a lot one month, and nothing in another. This increases the chances of a default or arrears.
Second reason for not allowing them an access to mortgages is that they get their income from varied sources, thus making the computation of income difficult. A freelancer may work for a number of people, each paying him/ her different remuneration for his services.
Finally these people do not have any means to prove their income like those who are in employment with others. The salary slip or P60 forms can prove income of the latter. But there is no such document with the self employed persons. Audit results of three previous years would have served the purpose, had accounts not been fudged to evade tax.
This is where self certified mortgages step up to provide relief. A self certified mortgage can help self employed and freelancers to draw as much fund as they like, without having to prove their income. This includes no dishonest ways and means to prove a larger income. In this kind of mortgage a customer has to declare income and no further checks are made. The customer is required to put forth no documents to prove his contention. It is his words that value more.
Self certified mortgages allow borrowers to take as much as ₤1 million with a 10 - 15% of deposits (this is dependent on the lenders). Self certified mortgage carries a higher rate of interest than most of the regular mortgages because of the increased risk.
The amount of money that a customer can borrow on self certified mortgages is calculated after adding up the annual income of both customer and his/ her spouse (if both are working), along with any bonus, commission, and any other sources of income pertaining to the customer.
Customers shall after making the calculations decide how much can they pay as the monthly installment. They have to be careful in deciding this. They know their monthly income better than any other person. Both extraordinarily high income and an unusually low income as the basis for deciding the monthly payment can result into problems. In the former case, the borrower is stuck up in the payment. In the latter, the mortgage takes more time to be repaid. An average income, trimming off the fluctuations, will be the optimum payment.
Customers can have as many choices through the self certified mortgages as they could have on the regular mortgages. They can have a flexible mortgage wherein they can pay more in the months when his earnings are increasing. In the months of depression he can pay less or take a payment holiday. Similarly the self certified mortgages come with the features of tracker rates, fixed rates, capped rates and many other interest alternatives.
But the process of self certified mortgages differs with lenders. Some lenders may conduct special enquiries as to the credibility of the customer. Normally banks may be contacted and accountant details checked. As discussed earlier about the legality of the purpose, lenders may ask for proofs if they have any doubts.
It is recommended to take professional advice regarding the suitability of self certified mortgages for your income. The customers must choose the mortgage provider properly. Choose the one who charges the best of rates. Before signing on any document examine the various clauses properly. It may have included hefty redemption charges, for instance, to check the customers from shifting over to a regular mortgage.
MORE RESOURCES updated Sat. December / 09 / 2023
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