How does a self-certification mortgage work?

Posted on 11 July 2007

My husband and I are currently splitting up and about to sell the house. I work part time and have one main job and two casual jobs. A friend told me about the self-certification mortgage. Could you tell me how this morgage works and whether it would be a good choice for someone in my situation? I have 2 children 5 and 6 years so will receive monthly credits also.

Jess

Hello Jess,
 
Looking at the wider picture, you may not necessarily need to self certify: there are lots of lenders that can offer kinder terms in the case of marital splits as they know that it is difficult to afford a mortgage alone if you are working part time whilst bringing up children.  Self-certified mortgages typically have a higher arrangement fee and/ or a higher interest rate so if you can prove income at all for the two casual jobs you should start by approaching some mainstream lenders who could look at your situation.  Lenders can often take into account weekly payslips or a tax return if, from this they will be able to establish your average annual income. From this they will use either an income multiple such as '4 x income'  to work out what they will lend you, or they will look at your monthly income after tax and work out what monthly mortgage payment you can afford, then from that they will work out your maximum loan amount.  Some lenders are also able to take benefits and maintenance into account. Abbey, BM Solutions, Accord and Norwich and Peterborough, amongst others would be able to take a view on this for you depending on how much deposit you will have and the strength of your credit score.  This is one of the situations where having a mortgage advisor on your side arguing the positives of your case to the lenders will get you much further than you could alone.

If you do not have any evidence of your casual income then you can self-certify.  You would need to sit down with a mortgage advisor and work out what your income actually is and what you can rely on for the future. Unfortunately you are not able to put down any income that you are not actually receiving or any wishful thinking scenarios because if you borrow too high an amount as a result you may find it very difficult to make your mortgage payments if interest rates continue to rise.
 
The self-certified application itself is very similar to normal mortgage applications, except that you don't give evidence of the income and instead you have to sign an extra section to say that the figures that you are putting down are true, and additionally that you have calculated that you can afford the monthly payments.
 
You can also explore the possibility of your husband acting as guarantor on the mortgage if his income is higher. 
 
I must also make you aware that, as you are responsible for the house and the children now, it is also absolutely vital that you now cover yourself in the case of death or illness.  Unless you have an excellent back-up plan already you should set up a policy now that pays out the value of the mortgage (or as much as you can afford to cover) if you become critically ill, or if you die.
 
It certainly sounds like you need some specific advice on your situation so I strongly recommend that you use an independent mortgage advisor to calculate exactly what sort of loan amounts you are looking at here, and which lenders can offer the best terms to you.
 
Best of luck.
 
Katie

Category: Self-certification

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