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Self-certification mortgage
Self-Certification Mortgages Explained

A self-certification mortgage or self-employed mortgage is a home loan designed for people who may have difficulties proving their income to mortgage lenders, in particular the vast numbers of self-employed workers. People who may have these problems probably have decent jobs, but based on the nature of their work or their employment contracts, they are hard pushed to produce the relevant documentation required by mortgage lenders. For example, it is normal practice for some lenders to ask for up to three years validated accounts to qualify for a standard mortgageā€”this is simply not achievable for many self-employed workers, so they look to self-certification mortgages.

A self-certification mortgage is the ideal mortgage for the following groups:

  • people who are self-employed

  • people on short-term contracts

  • people in irregular employment or freelancers

  • people with credit problems

What are the different types of self-certification mortgages?

Similar to normal mortgages, self-employed mortgages offer two main options:

  • a repayment mortgage

  • an interest only mortgage

Additionally, you have the choice of fixed or capped rates, discounted deals, tracker rates, variable rates, and more. A typical self-certification mortgage deal will usually last between one to five years, after which time you will probably be able to switch to a self-employed mortgage with a variable or tracker rate.

How do self-employed mortgages work?

A self-certification mortgage allows you to simply state your income which your loan provider has to partly take on trust, thus allowing you to take out a loan to finance the purchase of a home. Some lenders are more cautious and may ask to see your bank statements or ask to speak to your accountant.

There is no typical amount that can be borrowed on a self-employed mortgage. For instance, as a self-employed worker, you may not have a regular income or monthly or weekly pay slips. It is, therefore, possible for you to ask to borrow any amount within reason; there is no way for a lender to determine your actual income.

A deposit on a self-employed mortgage can range from 5% to 75%. Obviously, if you ask to borrow a significant amount of money, you will be asked to put down a larger deposit.

Important considerations

It may be tempting for the self-employed to overstate their income in order to obtain a bigger home loan. Avoid borrowing more than you can actually afford. If you start encountering problems in your work life, if your business experiences a slow-down, or if interest rates start to climb, you may find yourself in severe financial difficulties.

First-time buyers may find it difficult to obtain a self-certification mortgage. Some lenders may be willing to work with you, but it is likely they will demand higher deposits.

Be prepared that the interest rates offered for self-certification mortgage are generally not as favorable as they would be for a standard mortgage. It is possible to gain access to standard rates if you can afford a higher deposit.

Before you think about taking out a self-certification mortgage, it might be worth approaching a mainstream mortgage loan provider. You may be surprised to find that there are a few who are willing to offer loans even to those with erratic incomes, such as the self-employed.

Check out the best mortgage providers

 
 
 
 
 
 
 
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