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Freelance news: The End of Self-Certification Mortgages

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fmme Freelance news: The End of Self Certification MortgagesThis week the FSA chief executive Hector Sants outlined a radical shake-up in the mortgage market. The new proposals by The Financial Services Authority (FSA) include a ban on all Self-Certification Mortgages.

This is potentially worrying news for Freelancers and Contractors as Self Certification Mortgages were designed for workers who have trouble proving their income in a conventional manner such as freelancers, contractors, self employed, and company directors.

On face value, Self Cert Mortgages seem the ideal solution for freelancers as they usually require little or no proof of income; however the reality is high mortgage rates and in many cases extortionate arrangement fees.

During the housing boom it has been estimated that almost a third of all mortgages offered were on self-certified basis. This has resulted in a number of mortgage fraud enquiries as rogue brokers encouraged borrowers to give inflated income figures to boost their own commissions.

Individuals who are not permanently employed that have tried to secure competitive High Street mortgage funding on a non self certified basis have inevitably failed because lenders will not take all of their income into account.

So where does this leave borrowers who saw Self-Cert Mortgages as their only option?

At Freelancer Mortgages Made Easy (FMME) we would never advise a client to take the Self-Certification route; instead we work with senior underwriters to secure you a mortgage based on your hourly rate, thereby taking all of your income into consideration.

FMME are able to secure mortgages with high street lenders and at high street rates, giving you access to the same whole of market mortgages that are available to borrowers who are able to prove their income in the traditional way.

Taj Kang of FMME welcomed this news and commented “The death of self-cert mortgages will mean that proper consideration will now be taken by lenders and brokers as to how much a borrower can afford. This can only be a good thing as in most cases a mortgage is the most important financial decision of a borrower’s life.”

This article was written by Ian Burrows at Freelancer Mortgages Made Easy – Freelancer Mortgages Made Easy are a whole of market mortgage broker who specialise in securing bespoke mortgages for contractors.

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  • http://twitter.com/freelanceadvice Freelance Advisor

    The FSA ban on self-cert mortgages may not be bad news for freelancers after all. If you want a mortgage “get a senior underwriters to secure you a mortgage based on your hourly rate”

  • psilver

    The deals on self cert mortgages have been rubbish for at least the last 18 months, so I don't think a formal closing of the system is going to make that much difference to people getting mortgages, at least at the moment.

    I'm in the tail end of getting a mortgage at the moment. I'm a freelancer who does short projects rather than multi-month contracts. For any freelancers interested in it – I had to produce three months statements for personal & business accounts, and two years worth of returns from Ltd company. My other half is in full time work, but is bringing in much less income, I would imagine the banks like the stability/straightfowardness of her work, so I don't know what difference it makes to our application.

    The only problem we've had is building up a deposit. At 15% deposit before you get near sensible repayment levels, I'm surprised anyone in full time work can manage to buy anywhere to live at the moment. At least being freelance I was able to save up pretty quickly by taking on more work.

  • http://www.freelancerfinancials.uk.com/ John Yerou

    Can't help with the deposit! But can give you or anyone else in a similar situation some advice!

    Yes, you're absolutely right Self-Cert mortgages have been priced out of the market, substantial arrangement fees and interest rates much higher than prime mortgages. The few lenders that still offer self-cert mortgages know they have a captured market and are capitalising. 2-years ago you could get a self-cert that was only marginally higher than prime rates. I'm sure given time the rates will come down to more reasonable levels.

    As you said, you have 2 years accounts and bank statements to support your application, so indeed you shouldn't have a problem as long as the standard multiple of income applied to your accounts stacks-up to the desired loan you have applied for. Each lender has their preferred assessment criteria, some will look at net profits (this is more desirable), others at drawings (basic salary plus dividends) or may just look at (salary combined with net profits) or in the worse case just salary. For tax reasons, many self-employed freelancers working through a limited company will draw a minimum salary and also restrict dividend payments to avoid higher rate tax. Although this is a perfectly reasonable tax planning strategy it also has the unintended consequence of reducing the amount a contractor is eligible to borrow under the standard criteria used by most mortgage lenders. This is when a specialist mortgage brokers like us can help. Anyway it seems like you're well into the advance stages of the mortgage process so should be ok.

    All the best!

  • Sophie

    The guys at FMME are great in helping in these situations. Im a Freelancer working in TV production and could'nt get a mortgage until a friend put me in touch with them. Sophie

  • freelancerfinancials

    Don't you mean – If you want a mortgage “get a specialist contractor mortgage broker to secure you a mortgage based on your hourly rate”?

  • http://www.freelanceadvisor.co.uk FreelanceAdvisor

    Yes. That's much clearer :)

  • FPSUmbrella

    Indeed, freelancers seem to have been caught in the cross fire as the FSA has been keen to appear to be clamping down on the unruly banking sector. Just when the country needs entrepenuers the most, the net result of the move could be to force them back in to permanent employment to obtain a mortgage.

    Although the death of the self-cert mortgage may come as alarming news to many freelancers, it certainly does not have to be the end of home ownership dreams. Those working via some umbrella company can get access to special schemes that ensure they can borrow the same, if not a higher amount, as when they were a permanent employee. Their contract-based income verification allows freelancers to borrow without the high interest rates and fees that were often associated with Self-Cert mortgages and could offer a life line to those temporary workers who are coming to the end of a discounted or fixed term or are looking to purchase a house in the future.

    Going directly to a lender and asking for a mortgage based on a contract rate would almost certainly end in failure as they will probably look at the short term contract and assume that the freelancer cannot afford the repayments. However, freelancers with umbrella companies are able to secure a mortgage based on a multiple of their annualised contract rate alone. With schemes available for temporary candidates who are even within the first week of starting their first contract, there is a solution to fit almost all needs.

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  • john

    The self cert or self certification mortgage was primarily devised as a means to allow self-employed people to get a mortgage to buy their own home. One of the fundamental aspects of any mortgage loan application process is being able to prove your income.