Self-certified mortgage products are designed for self-employed individuals who have income in an irregular manner in the traditional way. This means that they by not receive pay slips and cannot prove their earnings like a regular employ. Hence, conventional types of lenders exclude them from the mortgage market. The income of such people can not be assessed easily due to the nature of their work. For example, they may be working as and when there is a demand for their work or services, such as a salesperson who earns different amounts every month or someone with no accounting records due to the seasonal nature of their work.
Understandably, the interest rates are generally higher than other mortgage types as the risk involved for the lender is greater. Due to the same reason, a majority of lenders do not offer more than 75 to 80% of the property value against which they are borrowing the money. The mortgage depends on how much an applicant can afford and the ability of the applicant to keep up with repayments.
Originally self-certification mortgage products were designed for the self-employed. The changing composition of the workforces has, however, meant that many employees cannot fully prove their employment income as well. Such type of persons may be a freelancer, seasonal worker, variable income every month income from more than one source, self employed for less than three years, or without any account on their income for the last three years.
In order to get this option, the lenders require the borrowers to give an assurance to the lender about their income and the mortgage loan amount that they can borrow based on the income they have stated. The stated income does not require any documentary evidence but it may need a chartered accountant to back it. It means that self employed workers must have proper sets of accounts in readiness which involves regular bookkeeping.
Additionally, it might necessitate some proof of income in the form of credit checks undertaken by the lender on the bank statements or references of the borrower. If the borrowers own a home they maybe asked to provide their existing mortgage statements, if any. Tenants might be asked references from their landlords.
However, it does not mean that not having to fully prove income can let borrowers exploit the situation by exaggerating their income on their application. Such false declaration may increase the risk of over-borrowing and therefore dispossession. More over, lying about income on a self-certification mortgage application is a criminal offense, and more lenders are challenging applicants income declarations, reducing the likelihood of borrowing putting themselves at financial risk. Hence, they should be very careful to borrow an amount they can afford to repay in accordance with the criteria mutually agreed with the lenders.
There are also suitable options designed for potential borrowers who are suffering from adverse or bad credit. Even though the rate of interest will be a higher, a bad credit report will not affect their ability to qualify in majority of the cases. The borrowed money can be used for all the usual purposes, such as property purchase, home extension, debt consolidation, fund raising for a business venture, holiday home purchase or what ever you deem fit, but be careful that you make repayment on time.
Rates, terms and conditions vary from lender to lender depending on their policies and competition in the financial market. By doing research and comparison a shrews borrower will be able to find suitable packages with affordable costs. Such information is available on the website of many lenders. Additionally, to get more insight into the complex process, you can consult a mortgage broker. Most of these services are available online and are very easy to access and make use of.
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