In the beginning
10 years ago, self-certified mortgages, or self-cert products as they quickly became known, didn’t offer many options to their customers because there was a widespread lack of understanding of what purpose they served and how they worked. Customers were confused and understandably reluctant to pay the kind of premiums charged back then simply because they did not have a traditional or ‘provable’ income.
When house purchase and the concept of owning your own home really began to take off in the 80s, there were few lenders offering a mortgage solution for the self-employed, and those that did charged premium rates and had less competitive terms than those available to more mainstream customers. Non status products were available, but loan-to-value (LTV) limits were often less than 75 per cent, leaving customers to raise a very large deposit. Generally, self-employed customers had to jump many hurdles before they would be offered a mortgage – if they had anything less than three years’ fully-audited accounts, it was unlikely that they would even be considered for a loan.
Over the years, the self-cert market has matured and expanded, as have the attitudes of lenders.
It’s not surprising lenders are vying for their share of this market. After all, far from posing a high level of additional risk, these people are ideal borrowers. They are likely to be financially astute, are probably used to taking out and servicing loans and have an element of control over their income.
Changes
Now lenders have realised that the self-employed do not necessarily pose more of a risk than standard customers, they have also acknowledged the fact that PAYE employees often have more than one source of income, which may not always be reflected on a standard application form. And there’s a growing number of people who work on a contract basis. Traditionally the territory of IT workers, contract working has now spread to health, teaching and the media. Bonus and commission-based earners have also had problems meeting the requirements of mainstream mortgages.
These days customers need to have all types of income taken into account if they are to secure a reasonable mortgage, and self-cert products allow them to do this.
Our survey says…
At the end of 2005, we commissioned research company McCallum Layton to conduct a survey among introducers so that we would have a better understanding of their views of self-cert and how it meets customer needs.
The results showed that, on the whole, self-certification was on the increase, backing up the statistics that indicated a growing number of people are choosing to work for themselves and the fact that more and more people now have more than one source of income.
The survey also showed that introducers who were familiar with self-cert believed that PAYE options in self-cert products were necessary and that employed customers were on the increase (on average, the respondents said that PAYE customers accounted for around 17 per cent of all self-cert applicants). Those who rely on bonuses or commission or have investments (such as buy-to-let properties) need to have access to a product which will take all forms of income into account.
We have listened to what our introducers have said and designed our self-cert mortgage to be flexible enough to meet the real needs of self-employed and PAYE applicants who aren’t able to prove all their income. It provides customers with the opportunity to apply for a competitive, feature-rich mortgage.
Key benefits
Income multiples:
Single – from 3.50-4.75 times, dependent on income.
Joint – from 2.50-4.00 times, dependent on income.
Up to 90 per cent LTV for first-time buyers (FTBs), remortgagers and movers, with no higher lending charge (HLC).
No proof of income required (though we reserve the right to request further information if there are reasonable doubts over an applicant’s income).
Flexible payment options
available.
Full online service including decisions-in-principle (DIP), applications and electronic offers.
Please note – FTB lending is limited to a maximum of £250,000.
Responsible lending
We are aware that both lenders and introducers have a responsibility to meet the Financial Services Authority’s (FSA) responsible lending rules. And we know how frustrating it is for introducers and their customers when self-cert applications get turned down. We’d also like to be able to accept more applications first time round. To help with this, we’ve produced a Know Your Customer leaflet, available from our website, which encourages brokers to pass on as much information as possible – particularly on sources of income – about their self-cert customers so we can make an informed decision about their application.
The key points are:
Use the ‘Additional notes’
section on the application
The most common reason for an early decline of a self-cert case is when a customer’s declared income doesn’t match our expectations. Often, this is simply because there isn’t enough detail about their job for us to make a decision. But if brokers use the ‘Additional notes’ space to expand on what their clients do, we’re more likely to be able to proceed without asking for more information.
Fill in all income fields
We also sometimes turn down applications because introducers haven’t filled in all the fields for declaring income. It’s worth remembering that we take 100 per cent of all earned income into account (excluding second applicant’s secondary income), so introducers should make the most of the income fields and show all bonuses, commission, salary from weekend jobs and so on.
It’s also worth bearing the following points in mind to make acceptance of cases more likely:
We are likely to pick up all credit commitments, so we will be able to process applications much more quickly if applicants disclose them all in the first place.
If a customer’s LTV is less than 85 per cent and they want to remortgage and consolidate their debts, introducers should select ‘Remortgage and debt consolidation’ to ensure credit commitments are not deducted from their income.
We offer 90 per cent LTV for all types of borrower (subject to loan size) and we do not require applicants to be on the voters’ roll.
The future
It is clear that in today’s mortgage market the self employed, PAYE applicants with more than one source of income and those on contract or who rely on commission should not be treated differently from any other type of borrower. However, they do have different needs when it comes fulfilling lenders’ requirements to prove income. For a variety of reasons, when it comes to proving income to a lender, often the documentary proof does not reflect true earnings. Advances made in mortgage product development, underwriting and processing have all helped to ensure that the needs of a significant customer segment are finally being met, offering customers more choice, more flexibility and, ultimately, better value
