Self-Certification Mortgages

What is a self-certification mortgage?

Self-cert mortgages allow you to ‘self declare’ what you earn to a mortgage lender. They came into existence about ten 10 years ago and were originally aimed at self-employed and small business people who had not been in business long enough to provide the traditional evidence of three years’ income.

Are they just for the self-employed?

No. Anybody who has an irregular income, for example, those with seasonal jobs, or people who get a high proportion of their income through commission can apply for a self-cert mortgage.

How do self-cert mortgages work?

Usually all you need to do is to state how much you earn on the mortgage application form. You won’t be asked for any proof of this, but you may have to provide business bank statements so the lender can look at the gross income you have received. If you are already a homeowner you may be asked to supply your mortgage statements.

Do they differ from standard mortgages?

Only in that you may have to put down a larger deposit or pay a higher interest rate. Typically, lenders require a deposit of between 75 per cent and 85 per cent of the value of the property. Also, interest rates may be a little higher than on a standard mortgage.

Can I lie about my income to get a bigger mortgage?

It is a criminal offence to lie about your income when applying for a mortgage and rumours were rife a few years ago that mortgage advisers were encouraging borrowers to do just that to enable them to borrow large amounts. The Financial Services Authority (FSA) carried out a review of self-cert mortgages following these allegations. The review examined what controls major lenders have in place to prevent mortgage application fraud arising from borrowers lying about income. It showed that lenders’ controls are generally appropriate.

Philip Robinson, the FSA’s spokesperson on financial crime issues, said: “We would like to remind consumers that it is a criminal act to lie on their application forms. They know how much they earn and should state that clearly.”

There are two consequences of bending the rules; the first is if you are found out you may get a criminal record, the second is that you may have over-stretched yourself financially and will be unable to keep up repayments if interest rates rise.

What deals are available?

Self-cert mortgage interest rates tend to be a bit higher than standard rates. For example, the current lowest rates are from The Mortgage Works at 4.49 for a two-year fix and Standard Life Bank at 4.95 per cent for a two-year fix. Standard rates are currently available for as low as 4.25 for a two-year fix.

If you want a self-cert mortgage it may make sense to talk to a mortgage broker as he or she will have access to a wide range of mortgages, including exclusive deals that may not be available on the high street.