Articles > Self Employed Mortgages

The number of people choosing to go down the self-employed route is increasing each year, with significant numbers moving away from traditional employment over the last few years. People are tempted by all the benefits that being self-employed can bring, such as greater job satisfaction, flexible working hours and a better work-life balance.

As with most things in life, it’s not all positives and being self-employed can have its drawbacks. One area where being self-employed has a particular impact is in getting a mortgage, as lenders traditionally require proof of earnings from the borrower in the form of their payslips, something that those who are self-employed cannot provide.

Because of the demand for mortgages from self-employed people, many mortgage lenders introduced special products to cater for them, known as ‘self-certification mortgages’. These mortgages forego the usual salary multiple method of calculating the borrowing limits, and instead rely on the borrower declaring how much they earn, and how much they can afford to pay back in terms of the monthly mortgage repayments.

By working in this way, self-certification mortgages get around the problem of people not having a regular and provable income. As a side effect, people who are in regular employment can also use them in order to get access to a larger borrowing limit. For example, people who earn large bonuses will only have half the bonus amount taken into account for their earnings with a traditional mortgage, however by choosing the self-certification route they can claim the full amount as their earnings, thus giving them access to a larger mortgage.

These self-certification mortgages do carry a premium in terms of the interest rates charged on them, with these generally being around half to one percent higher than the equivalent standard mortgage. As well as this, they also tend to require the borrower to provide a higher deposit, and will usually provide a maximum of eighty-five percent of the value of the home on which they are taken out on.

While self-cert mortgages have received some bad press because of them being misused by people claiming to earn more than they do in order to get the amount that they want, they are a genuinely useful product in the mortgage market and for those who lack the accounts or payslips to prove their income, they can be invaluable.