Self Certification Mortgages – The End

The Financial Services Industry in now in consultation on affordability matters relating to obtaining a mortgage.

The Financial Services Authority looks set ban Self Certification mortgages. In other words, you are looking for a mortgage where you the client tell us, the adviser, what your income is and we trust you this figure is correct.

You then obtain borrowing based on that income. The difference in the future could be that you have to be able to prove that income, whether by providing payslips or accounts.

If you cant then it may well be the case you don’t get the mortgage.

This could be particularly problematic for those clients already with mortgages that may look to move in the future or borrow more money or simply look to remortgage to a different deal.

If you aren’t able to prove you earn the money to support your existing loan, then new lenders probably wont consider you for the loan. The onus will be on them under proposed legislation to ensure they have taken adequate steps to be sure you can afford the loan.

Remember if you are self employed, lenders are interested in your net profit and not your turnover or gross profit. Many clients often confuse these figures.

Don’t forget any personal commitments you may have such as personal loans, credit cards, HP agreements, “Buy now Pay later” arrangements and student loans. The monthly payment on these is annualised by lenders and then deducted from your income when considering the amount they will lend.

They will typically lend between 3 and 5 times your income, although we are likely to see this restricted to more like 3 to 4 times in the future.

So get preparing.

We are aware that some clients may earn more than they possible declare to the Revenue! This will often be why they can take on bigger loans. Going forward however, you will need to decide what is more important to you, avoiding the tax or getting the mortgage.

I also expect the Revenue to take an interest in levels of borrowing of tax payers in future. They might well start looking at how some can afford £150,000 loans when their net profit is just £10,000 for example so beware.