08 October 2007
Mortgages for entrepreneurs, tradesmen and business owners
People who are self-employed or on short term employment contracts have traditionally found it difficult to obtain a mortgage. Also, people who are changing lifestyle to work from home or change hours to create a better work-life balance can benefit from this type of mortgage.
Those who work for themselves usually have to provide a detailed copy of their accounts for the last three years to prove that they can afford the repayments, while those who undertake contract work may find themselves having to explain gaps in their employment record.
Self-certification mortgages have been introduced to help people in this situation.
A Self cert mortgage is where you confirm your income without the need for supporting income documentation. They are generally for self-employed people, those who have irregular earnings, or if income comes from a number of different sources. The good news is that competitive self-certification mortgage rates are now offered by more lenders.
It is important to make a distinction between self certification and sub-prime mortgages, where mortgage products are offered to those who have a low income or an adverse credit history. These products often have a higher interest rate and are obtained from specialist lenders, not those found on the high street.
Increasing numbers of people are becoming self employed and self certification mortgages now account for approximately one in every ten home loans, whereas just a few years ago they accounted for one in 20.
Reputable self certification mortgages are aimed at those who have a good credit history and are able to meet repayments. They do not tend to be for first time buyers, being aimed at those who already have a property and who are looking to upgrade or re-mortgage.
Self certification involves declaring how much you earn to the mortgage lender and it is important to keep in mind just how much you can afford to repay each month. Before looking for a self certification mortgage, create a detailed budget of your income and expenditure to assess exactly how much you can afford to pay back, as you may find you need to reassess the size of the mortgage to fit in with your lifestyle.
Do not be tempted to artificially inflate your earnings in order to be able to borrow more money. As well as it being illegal, you may find that any change in interest rates or your circumstances could stretch your finances too far and put your home at risk.
Saffron Building Society's self certification mortgage is specifically aimed at providing a great rate to those who may not be able to provide the paperwork to prove their earnings, but who will have no problems with paying it off.
Our three year tracker mortgage offers a competitive rate of 0.40% above the Bank of England base rate, which at the time of writing is 5.75%, giving a current rate of 6.15%. After three years this reverts to our standard variable rate of 7.59% for the life of the loan.
However, the key features of this mortgage are that it is available for up to 80% of the property value or purchase price, making it ideal for those looking to re-mortgage or upgrade their home, or for buyers who have saved a large deposit. Basic legal work on re-mortgages is free, with a refund of valuation and an arrangement fee of £599.
Responsible lenders, such as Saffron, will make detailed inquiries to ensure you can afford to pay, including credit checks, budget calculators and confirming your employment status.
As with all financial matters, and especially so if you plan to take out a self certification mortgage, always take financial advice before making any decisions, as well as completing a budget and considering how your circumstances may change in the future.
Self certification mortgages are a great development for those who may have had difficulty with proving their income in past and with some careful consideration of your budget can provide you with the means to buy your home.
