Self Certification Mortgages for the Self Employed

Important notice

We are currently unable to arrange self certification mortgages.

One of the consequences of the Banking credit crisis is that mortgage lenders have withdrawn from this type of lending.

We will be watching for any development in this area

 The self employed represent a growing proportion of the working community.  You will be regarded as self employed if:

• You are responsible for paying your own tax and National Insurance contributions OR

• You have a controlling interest in the limited company for which you work.

If you are in a partnership, lenders will assess as your income your share of the business net profit.

It is important to understand that the lender will only use net profits (after deducting business expenses).

You may be starting work on a self employed basis and you may feel that your initial expenses outweigh your income.  A self certification mortgage would be of use to you in these circumstances.

Mortgage lenders are happy to lend to the self employed.  The traditional requirements are sight of the last 3 years accounts, prepared by your accountant

If you complete your own account, the requirement will typically be 3 Statements of Account from the Inland Revenue.  Lenders use the “Net Taxable Profit” figure as your income.

If the net profits are not sufficient, then self certification may be a solution.

Self certification is not intended as a means of lending to someone whose income is insufficient.  It is for those whose real income is higher that that shown on their accounts.

It may be that you have an extra income buying and selling on ebay.  This is acceptable if you are trading legitimately, that is, you have registered the business with the Inland Revenue and will be paying taxes on your net profits.

How long self employed

You can take out a self certification mortgage having just started a business.  In these circumstances you will need a deposit of at least 15%. If you are a first time buyer the deposit will need to be at least 20%.  Most lenders will not be available to you as there will be no history and the chances of the business failing will be relatively high.

Most self certification lenders require that you have been trading as least 12 months.  You do not have to have produced your first set of accounts.

All lenders will require that you state a figure for earnings.  This figure needs to be sufficient to service the mortgage you want taking into account any other commitments you have.  Please discuss income and outgoings with your broker who will be able to advise how this will be assessed.

Mortgage lenders will not just accept the figure submitted.  They will apply reasonability tests to the information and may take up references.

Limited Company owners should understand that the accounts you have posted at Companies House are publicly available.  Lenders are likely to take up references.

Some lenders will take up references and some will seek to establish that your business is real and trading. This may include an internet search or search of Yell.com.

If you employ an accountant then they may be contacted.  Typical queries to your accountant may include the following:

• How long have they acted for you

• How long have you been trading

• Are you currently trading

• Are your tax affairs up to date

Some lenders may request an affordability reference.  This type of reference will ask the accountant whether, in his opinion, the applicant can afford the mortgage given the current level of commitments.

It is important to note that accountants may not always be happy to provide this type of reference as they may not be familiar with all your financial affairs.  Even if they are familiar, they may not be prepared to confirm that this mortgage is affordable.  Please discuss this aspect with your broker.