Mortgages for the self employed

Time was when obtaining a mortgage as a self employed person was something of an uphill struggle - a far cry from today when a large number of lenders are happy to lend to those without salaried earnings. Historically, the self employed were charged much higher lending rates or refused mortgages altogether, because lenders regarded their income as unreliable and therefore too risky to lend against.

Nowadays, with the increase in competition in the mortgage market, the self employed can expect to borrow at the same rates, or at rates not significantly greater than those applicable to the employed. This is due to the introduction of the self certification mortgage, whereby borrowers are simply asked to sign a statement of earnings, rather than having to provide proof of income.

Although this is a great improvement on the past, first time buyers and new business owners may still have difficulty in obtaining self certification mortgages because of their lack of track record in handling debt. Applicants without several years trading to prove a stable income will need to have an accountant who can verify that their business turnover justifies the statement of earnings they have declared.

Applicants may also be checked at credit reference agencies to see whether they have handled credit card debt responsibly in the past. For this type of check, it will probably count in your favour if you have held several credit cards.

However, most self certification mortgages only allow you to borrow up to 75-85% loan-to-value (LTV), with lenders willing to lend more than that being extremely rare. This is probably wise given that it is a well known fact that a minority of borrowers exaggerate their income and are liable to find themselves overstretched, particularly if interest rates rise.

One of the best self certification deals at the moment is from Birmingham Midshires which is lending up to 85% LTV at base rate + 0.70% (pay rate 5.54%), with no early repayment charges. Another bargain is The Mortgage Works three year fix at a rate of 4.99% on 85% LTV, although there are early repayment charges in the first three years. For those wanting up to 90% LTV, Mortgage Express is offering a four year deal at 5.55% (base rate + 0.8%), but watch out for the early repayment charges of 5% in the first four years.

Some high street lenders will consider lending their standard mortgage range to the self employed, on condition borrowers accept that the lender reserves the right to conduct checks on their income and credit history. Both Halifax and Northern Rock are willing to offer their fast track mortgage range to the self employed on this basis. The latter will lend up to 85% LTV.

Other lenders to the self employed include Abbey, Bristol & West, Chelsea Building Society and the Bank of Ireland, as well as specialist lenders such as GMAC-RFC, Platform and The Mortgage Business.

10 November 2005 © Moneyextra.com

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