A self-certification mortgage is a mortgage that allows you to declare the amount of money you earn from employment. In the past, people used the self-certification mortgage for the first time about ten years ago. The term becomes famous primarily for small businesses and self-employed wage earners who do not have the three years evidence necessary income that the lenders require.
The self-certification mortgage is not just for the self-employed. Anyone who earns money irregularly can benefit from a self-certification mortgage. People who have seasonal employment or people who make their money through the commission, as sellers, will find the self-certification mortgage helpful. One of the main ways a self-certification mortgage differs from other types of mortgages is that you may be asked to put in a higher deposit. You may also end up paying a higher interest rate on your mortgage loan.
Borrowers who obtain a self-certification mortgage may find that they have to deposit 70% to 80% of the home’s value. When applying for a self-certification mortgage, you must present a document lender statement of your bank transactions. The lender is used to verify your gross income throughout the year. If you already have a house, it may also be necessary to provide your mortgage statements.
You cannot ask for any proof of how much you earn, but do not be tempted to exaggerate or lie about your income. The Financial Services Authority (FSA) has powerful rules on this matter, and it is a criminal offense to lie about your income. If you lie and are outside, then you may receive a criminal record. Also, if the loan is more extensive than you can afford, you may not keep up with the payments.
There are a variety of interest rates for auto certification mortgages. They are higher than standard mortgage rates, and it makes good sense to talk to your mortgage broker before making a decision. They should advise and provide information on auto certification mortgages that are not available elsewhere.
- The self-certification mortgage can help self-employed workers buy a house.
- Self-certification mortgages can require borrowers to make a large deposit.
Rates and deposits
There is a one and a half higher percentage rate of self-certification as compared to standard loans. Understand this by using Home Loans. According to the data provider Moneyfacts, UCB Home Loans offer a self-certification scheme of around 4.99% as it is the cheapest and fixed rate for two years. In contrast, two years fixed rate of standard (non-self-certification mortgage) percentage is around 4.59%.
Two or three years of a short-term deal is the best option as per the recommendation of professionals.
Once the fixed or discounted term has come to an end, you may meet standard lending criteria and be able to switch to a lower rate. You must have a more considerable amount for a self-certification loan. Lenders demand 85 percent value of the property as an advance.
Self-certification mortgage and its value in the mortgage market
There is a mixed response regarding self-certification mortgages. The first reply is that consumers can misuse mortgages, and products can fulfill all actual requirements. People have preferred self-certification, including those who are self-employed. Whether you are well-off or self-employed, you can afford a mortgage quickly. However, self-certification is essential for the current market.
Essential Considerations
It is okay if you have a significant income as there won’t be any issue during an economic crisis or when you have high-interest rates. You will find an implode market with an inevitable shift in economic conditions. As a customer, you will have to learn some measures of taking large loans at a time. You can do this with an increase in interest rates. Also, your focus must be the rising rate of mortgage payments.
Alternatives
The best alternative is the usage of the fast-tracking process for standard loans. It is best when you (applicant) have a sufficient deposit and are not a first-time client. Some lenders are still using this alternative self-certification mortgage, including Standard Life Bank, Abbey, Woolwich, Halifax, Nothern Rock, Bristol and West, Portman, etc. Typically, you must have a 25% amount as a deposit. But, if you are using Northern Rock, you need to pay a 20% deposit money. Also, you don’t have to prove your income as the fast-tracking method is not a self-certification.
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