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Can you still get self cert mortgages

Self cert mortgages were once the darling of self employed individuals. To the point that they allegedly played a part in a finance blackspot some years ago. Read on to get the full lowdown on self cert mortgages and their alternatives.

Can you still get self cert mortgages?

Self certification (self cert) mortgages are illegal in the UK, but are still sometimes offered by lenders based in Europe, so the answer to this question is technically “yes.” You should, however, consider carefully why they were made illegal in the UK and take that into account if you are considering this as an option for you.

What are self cert mortgages?

Self cert mortgages are called this because the borrower declares his or her income and “self certifies” it, meaning no documentation is provided to prove the income. It is often used by the self-employed; by people who derive their income from several different sources; and for those whose base salary may be low, but whose income is derived mainly through bonuses, tops, or similar additions.

Why are self cert mortgages banned in the UK?

Because individuals do not have to prove how much they earn, there was concern in the UK that people were able to get mortgages that they could not afford, presumably through inflating their income beyond what it actually was.

Because lenders in the UK comply with FCA rules stating that each lender must take measures to ensure that borrowers are reasonably capable of repaying any loans given to them, UK lenders include credit checks and income verification as a mandatory part of the loan process.

Can I get a self cert mortgage from a European bank?

In theory, yes you can. The rules governing lenders in parts of Europe are less strict, allowing them to lend money using self cert practices. The first company to do this is based in the Czech Republic, but soon reached its lending capacity and has stopped taking applications.

What are the risks of a self cert?

If you don’t keep up with your mortgage payments, you are more likely to have your home taken away from you. FCA has rules on fair treatment when payments are missed due to illness, temporary financial difficulty, and can help protect you if it is determined that you were recommended a mortgage you couldn’t afford. A self cert mortgage would be regulated according to the laws and policies of the country from which it was issued.

What if you decided to get a self cert mortgage?

Even if you decide to get a self cert mortgage from outside of the UK, the FCA recommends you get advice from a UK mortgage advisor, check what protection comes with the mortgage in the terms and conditions, the lender’s policy with regard to missed payments, the fees charged, and the responsible regulator. If the UK advisor thinks that the deal is reasonable, and that you are reasonably able to repay the loan based on the salary you provided, your risks may be mitigated.

Did self cert mortgages cause the 2008 crash?

The short answer is: We don’t know. There is very little data available on self cert loans, and their difference from traditional loans makes them and easy target for speculation. During the period leading up to the crash, some lenders were giving 125% loan to value mortgages, interest only mortgages, and many other products that had a high degree of built-in risk having nothing to do with self cert practices.

Subprime loans (in which loans are given at below the market interest rate for a fixed term, then revert to a variable rate afterward, often causing monthly payments to skyrocket) have been identified as another major factor in the mortgage crash, but these are not the same as self cert mortgages – even if they are often mentioned in the same breath.

Self cert mortgages are not given at sub prime rates; in fact, they are often more expensive than other mortgages. They don’t rely on low introductory interest in order to lure borrowers into taking on more than they can afford.

The reason that they are sometimes included in discussions with subprime and other irresponsible lending practices is because a borrower could, in theory, claim a much higher annual income than what he or she makes in reality. By doing so, the lender could take on much more debt than he or she is able to carry.

Are self certs irresponsible?

The potential problem with self cert loans is that they are only as responsible as the borrower. If the applicant states an accurate income and financial picture, then there is every reason to believe that the loan will be repaid on schedule just as it would be for a situation in which the income was verified.

If the applicant was dishonest, however, and inflated the income, there is a higher chance that the loan will be defaulted. The possibility of a false income being declared on these loans has even led many to refer to them as “Liar Loans.” As we saw in 2008 (and for a decade afterward in many areas), this kind of irresponsibility can have dire international consequences.

If an applicant is self-employed, however, or is otherwise unable to produce proof of income that satisfies FCA and traditional lender policies, then turning to a self cert lending option to procure a mortgage is no less responsible than any other mortgage.

Alternatives to self cert mortgages

Traditional mortgage come with strict rules regarding proving income and resources, and have long been seen as the responsible counterpart to the self-cert mortgage, for which the applicant simply states his or her income, and no verification is made.

Traditional mortgages are available to those with traditional incomes – pay stubs from traditional companies, contracts stating annual income, hours, conditions, etc. – but an increasing proportion of the British public is employed in non-traditional settings, the largest of which being in the category of “self-employed.” This group alone is thought to include more than two million people.

Because of the lack of documentation stating that a self-employed individual will have continuing income, getting a traditional mortgage has proven very difficult, sometimes impossible, for those more than two million people. With the trend toward self-employment, shifting contract work, and the gig economy, traditional and other lenders have finally begun a move toward offering products that suit this growing demographic. These products are called “Non-Status” or “Non-Cert” mortgages.

Who can use non status mortgages

These mortgages are designed for individuals with consulting or other non-traditional jobs and/or who are self-employed and cannot therefore provide the usual documentation proving income. It is also useful for people with low base salaries, but who make the bulk of their income through bonuses, commissions or tips.

For example, a server at a bar might make £14,000 per year through his regular wages, but another £12,000 in tips and bonuses. A traditional lender would only consider the £14,000, whereas a non status lender would consider the whole £26,000.

Alternatives to non status mortgages

There is a product known as a “fast track” mortgage, for which individuals don’t need to provide any proof or documentation of income during the application process. Lenders offering these products usually stipulate that they “reserve the right to require proof of income,” so in practice this often has the same requirements as a traditional loan.

It is also becoming more common for self-employed individuals to secure a traditional mortgage. Requirements for proof are increasingly being modified or relaxed in order to facilitate lending to self-employed individuals.

How to get the best non status mortgage

The best way is to go through a broker. Non status mortgages are rare in comparison to traditional ones, and are seldom advertised, as they represent a much smaller market. A broker who specialises in non status or bad credit mortgages will be able to match client needs with products on the market and offer several options to choose from.

See here for one of the very few brokers offering mortgages in self cert mortgage area

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