Mortgage lenders may seem hell-bent on sharing their money with those borrowers in steady employment, but what happens if you are newly self-employed and can offer little evidence that you can be relied upon to keep up your monthly mortgage repayments? The answer, if you have little in the way of liquid assets, is not very much.
As long as you can put down a chunky deposit on the value of the property, you wish to buy, you are still in with a chance of a mortgage. Of course, you can't provide the lender with copies of payslips or an employer's reference and, unless you have been self-employed for three years or more, it won't be satisfied by examining your accounts.
Even if you have been trading on your own for a long period, you may feel that the net profits shown do not create the sort of picture that would impress a potential mortgage lender.
The solution is the self-certification mortgage, a personal finance product that arrived in the early 1990s to cater for those borrowers who were able to lay down a reasonable deposit but would have difficulty proving their earnings.
Some lenders felt that this was an underrated market and that employees were as likely to lose their jobs as the self-employed were likely to lose their jobs as the self-employed were likely to fail in business.
In fact, they argued, the self-employed were better motivated not to fail, and might be better equipped to pick up the pieces if all went pear-shaped.
Self-certification mortgages do tend to be lumped in with lending to the insolvent and uncreditworthy and rates are unlikely to be the best on the market, but needs must when you need a roof over your head.
Lenders usually expect the borrower to provide a substantial deposit. You will probably need to contribute at least a fifth, more probably a quarter, of the property's value.
Mortgage lenders regard it as too risky to provide more than a 75% or 80% self-certification mortgage. And if "self-certification" suggests that you simply cross your heart and promise to pay, it isn't quite that simple. Lenders won't take your word that you're good for the repayments.
They will check your credit rating, and may go on to demand even more evidence or evidence of earning power than they would from the established self-employed.
Usually the main form of proof is a signed accountant's certificate, but this may need to be supported by bank statements for your business account, over whatever period the lender specifies.
Also, if you already have a mortgage, you may be expected to provide your statements to show that you are a reliable customer - if you pay rent, your landlord can be asked to provide your statements to show that you are a reliable customer - if you pay rent, your landlord can be asked to provide a reference to the same effect.
If you are turned down for a
self certification mortgage, ask the mortgage lender why and, if not satisfied ask one of the main credit-reference for a copy of your credit file. Take your time, seek help and advice, and don't be afraid to question anything you don't understand to help the development of your
personal finance management.
