A self-certified mortgage or ‘self-certification’ was a popular way for the self-employed to obtain a mortgage pre Credit Crunch. The process was generally reliant on an applicant being truthful in their statements in respect of personal income and it was aimed at the self-employed and people with a variable and unpredictable monthly wage packet.

Unfortunately, prior to the credit crunch, this system of self certification was abused by some and resulted in unaffordable loans being granted inappropriately. In fact, the press subsequently referred to self-certified mortgages as ‘Liar Loans’. Since the Credit Crunch lenders have been nervous about offering loans to anyone that does not fall into a standard income profile and self-certification is no longer permitted.

However, in practice the self-employed still have access to the same mortgage products as employees, as long as they can now prove their income and satisfy the new rules introduced by the Financial Conduct Authority, in “The Mortgage Market Review.” This includes a variety of tests aimed at establishing general affordability of the proposed loan.

Most lenders classify someone with an ownership of more than 20-25% of a business for which they work as self-employed whether it is a limited liability company or sole trader. If you are classified as self employed then you will need to prove your income, ideally by producing audited accounts and/or proof of declared taxable income available from HMRC on a form known as SA302. In some cases up to three years previous accounts may be needed to prove a regular income, but some lenders only require 1 year. Self Employed Contractors are treated the same as employees by some banks.

As you might expect, a regular or growing turnover and profitability and a regular monthly income will help you secure a mortgage as a self-employed applicant. The SA302 is also very useful in support of your up to date and historic accounts and a fair and reasonable payment of dividends (in the case of limited companies) is generally preferred by lenders to extreme variances. At the end of the day lenders are looking to identify and reduce their lending risk and meet the obligations put upon them by the FCA to lend responsibly.

For more information or to speak to an mortgage adviser or call 01628 507477.

Recent posts

If you are looking at remortgaging your property but you are unsure whether it’s the right decision, we have listed five reasons why it might be for you.

As the cost-of-living crisis continues, many people across the UK are struggling financially, many of whom are finding it hard to get debt-free.

According to research by StepChange, there are five common reasons people don’t seek help and advice with debt concerns.

Friyay Rate Reviews

6 Feb 2024

Every Friday our experts search the market for the latest rates from every lender saving our clients some serious £'s!

Looking to Extend?

2 Feb 2024

Are you looking to extend your property? There are many benefits to adding an extension to your existing home, here are a few. 

Put simply, Equity Release is where you can release equity (money) tied up in your home for any purpose you like. In this short article, we share some reasons why you may want to consider Equity Release.

The team at Mortgage Required may not be able to lower the prices in your local supermarket, but we have come up with a list of tips to help you lower your food shopping bill.

Every year Big Energy Saving Week takes place to raise awareness about energy efficiency, reducing energy bills, and combating fuel poverty. Below are some ways you can get involved and hopefully make a saving!

In this blog we look at what happened in the housing market in relation to house prices last year, and look ahead at the forecast for 2024.