Self Cert Mortgages: No Longer Available but Still Requested

It used to be that home buyers with no easy way to prove their income could still get financing by way of self-certification (self-cert) mortgages. Those mortgages were banned in the UK in 2011 as a result of the financial crisis. Despite no longer being available here, self-cert mortgages are still requested by consumers who don't know they have been banned.

The good news for home buyers is that there are other ways to get a mortgage in the absence of traditional income verification methods. The key is knowing how to prove income and working with an experienced mortgage broker who knows how and where to find the right deals.

Banning Self-Cert Mortgages

Self-cert mortgages were all the rage during the housing boom of the mid-1990s to the early 2000s. Banks and building societies were more than happy to lend to people without traditional sources of income despite the risks involved. Who were these consumers?

They were consumers who didn't receive regular wages or salary from an employer. For example, one might have been a self-employed home remodelling contractor. As a contractor, his income would not have been steady. He only got paid upon job completion. One job might have taken him two weeks while another took a month.

The difficulty with this sort of thing is that it can be difficult to document income in a way that satisfies mortgage lenders. The self-cert mortgage was designed to get around this issue. Borrowers were allowed to take out mortgages based only on their promise to repay.

It was discovered during the housing crash that too many banks were giving self-cert mortgages to people who couldn't truly afford them. As a result, the government banned these mortgages in 2011. They are still available through other European lenders, but the Financial Conduct Authority warns consumers against seeking mortgages outside of UK boundaries.

Other Ways to Verify Income

The loss of self-cert mortgages has left certain kinds of home buyers in a bad position. Having to apply for a traditional mortgage leaves them in a position of having to prove income the same way as any other mortgage applicant. How is that accomplished?

Applicants who would otherwise choose a self-cert mortgage can verify their income by providing lenders with information from the following sources:

  • PAYE– It is possible to be both employed and self-employed simultaneously. You might work your own businesses during the day and a part-time job at night. PAYE records from your part-time employer would demonstrate that income.

  • Self-Assessment– Most consumers who would otherwise apply for a self-cert mortgage can still prove their income for a traditional mortgage by furnishing lenders with a copy of their most recent self-assessment form (SA302).

  • Dividend Statements– Investors who do not have a regular income per se can use dividend statements to prove their dividend income.

  • Government Benefits– Recipients of government benefits can easily prove that income by furnishing the appropriate paperwork.

  • Other Sources– There are other sources of income that should be easy to prove just by furnishing statements. They include pension income, investment income, and income from profit-sharing arrangements. Any documents created for tax purposes can be furnished to lenders.

Even though banks have been banned from offering self-cert mortgages, they are allowed to look at a full range of documentation in order to verify applicant income. As such, consumers who would have previously qualified for self-cert mortgages are encouraged to document absolutely everything pertaining to their income.

Buy to Let Mortgages

Mortgages on buy-to-let properties may be technically viewed as self-cert mortgages in the sense that lenders do not necessarily require borrowers to furnish proof of income. However, they are still not true self-cert mortgages under the law. Buy-to-letmortgages are a completely separate entity governed by different rules.

The beauty of the buy-to-let mortgage is that lenders do not need proof of income. They are more interested in the rental value of the property in question as opposed to its sale price. They expect monthly rental income to be high enough to cover mortgage and insurance payments.

Knowing all this, it is still possible to obtain a buy-to-let mortgage even if you cannot prove monthly income. The secret is working with an experienced mortgage broker who specialises in buy-to-let products.

Summary

Self-cert mortgages were banned in the UK in 2011. They were seen as too risky because they allowed people who could not afford a mortgage to borrow anyway. Though they are no longer available here in the UK, there are plenty of other ways to prove your income to a mortgage lender. You can still buy a house even if you don't work a 9-to-5 job with a steady income.