Britain’s supply of self-certification mortgages has all but dried up as jittery lenders decide borrowers who cannot prove their incomes are a risk no longer worth taking.
Only a few providers are still offering such loans, popular with the self-employed, yet not a single one was listed at the time of writing on moneysupermarket.com.
Under the deals, borrowers vouch they can afford the repayments and bypass the need to prove their earnings, making them ideal if their incomes are unreliable or irregular.
The withdrawal of ‘self-certs’, most recently by BM Solutions and Bank of Scotland, will defy people’s efforts to exploit historic falls in house prices and interest rates.
First-timers whose companies lack both strong profits and up to three years’ accounts will be hit doubly hard by failing to qualify for both self-cert and normal mortgages.
They are almost without the option of the former mortgage arrangement because borrowers who went before them inflated their income in order to secure larger loans.
Providers now fear such self-cert customers are struggling to make their repayments, partly because their income projections were based on normal business conditions.
Tony Harris, IFA at FreelancerMoney, said: “The FSA is increasingly clamping down on mortgage brokers who have knowingly inflated clients incomes on mortgage applications.
“Similarly the lenders are under increasing pressure to be seen to be acting prudently with regard to their lending and self certification of income is beginning to look like a product that has had its day.”
As a result, the self-cert providers that do remain, like The Mortgage Works, have tightened the criteria to secure such deals, such as by increasing their handling fees.
In addition, the Financial Times claims mainstream lenders now insist on the lowest total in three years’ accounts, whereas the highest was the norm pre-credit crunch.
“This may hit many freelancers hard because the early years accounts will invariably feature lower profit figures,” Mr Harris said.
“This is because most accountants aim to tax efficiently offset certain start up costs and will, for instance, pay the director cash to roll the value of a PC into the company which in turn will deflate taxable salary or profits. Good tax planning but potentially problematical for mortgage purposes.”
FreelancerMoney sounded a more positive note however. Tony Harris explained, "Whilst in the past many mortgage brokers relied on self cert deals to help freelancers this was always a double-edged sword in that the interest rates were almost always higher on these less stringent schemes.
"More specialist brokers have, however, been able to negotiate income verification based on contract rate alone rather than use self-cert or the accounts route, and most of these bespoke underwriting arrangements remain in place for freelancers to exploit."
Feb 10, 2009
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