Self certified mortgages are available for remortgaging when moving home, for Buy to Let mortgages and for First Time Buyers. Self Cert of income provides a mortgage solution for a range of people, such as the self-employed and contractors, but also for the employed who find themselves among the growing number of people whose working styles now differ from the norm, and where proof of income has become complicated. Self Cert mortgages allow you to make a declaration as to what your income is but without the need to provide documentary evidence such as accounts, P60s or payslips.
However, in today’s market Self Cert income is widely misunderstood. Self Cert does not mean that no income has to be stated, and neither does it mean that any income which is stated will be ignored; these were features of mortgage schemes known as “non-status” mortgages, and have been unavailable for a number of years. With today’s Self Cert, the lender will assess the income stated on the application form in the normal way, but will not ask for proof of the amount.
Self certified mortgages
This type of facility can be a useful tool where an applicant’s true income differs from their provable or taxable income. The lender knows that the reason the application is on a Self Cert basis is that the applicants don’t have documents to prove what they earn, and therefore will not ask for them.
Obviously, by not seeking documentary evidence of income, the risk for the lender is higher than it would be for full status mortgages. This is often reflected in the interest rate to be charged which is often 1% higher, and with the requirement for a larger deposit.
A Fast Track mortgage, on the other hand, is where a lender offers the facility to “fast track” a mortgage application by dispensing with the need for documentary evidence of certain things such as income. This facility is offered when the lender feels the credit score achieved by the applicant is sufficiently high, and they are at no greater risk by dispensing with the requirement for documentary proof of income.
The lenders would like applicants to understand that the ‘Fast Track’ facility is offered solely to streamline and speed up the process, and not to provide an application facility for those who cannot prove their income. As a result most lenders that provide a fast track facility randomly sample a percentage of their applications, and ask for proof of income to be provided.
Fast track mortgages should not be applied for by those for which there is no prospect of being able to supply documentary evidence of earnings within a reasonable timescale.
The confusion between Self Cert & ‘Fast Track’ is primarily created by the lenders and their criteria changes over the years. Whilst the lenders might “like applicants to understand that the facility is offered solely to streamline and speed up the process”, a shortening of processing times is seen by many as simply a by-product, and not the real reason at all.
Prior to the statutory regulation of mortgages by the Financial Services Authority in October 2004, the terms Self Certified and the fast track was almost interchangeable. Mortgage Lenders such as Abbey and Halifax would advertise a “fast track” policy, but when their representatives came calling they would discuss their new “Self Cert” facility. Northern Rock, produced announcements denying that they offered Self Cert, whilst all the time listing fast track cases as Self Certified on their internal systems. The simple truth is that most lenders want the extra market share which comes with offering a Self Cert style product.
Since the credit crunch in the UK mortgage market, lenders have been far more specific in what their schemes are. Mortgage lenders offering a fast track service are now actively sampling a proportion and asking for evidence of income, and some, like the Woolwich, are asking intermediaries to confirm that they have seen the evidence in all cases.
The Woolwich requirement for intermediaries to confirm sight of evidence demonstrates that a faster process is secondary to the real reason for offering fast track. If evidence has to be produced for the broker, it might as well be sent to the lender anyway; as the work has been done and the time already spent.
The bottom line is ‘Fast Track’ rather than Self Cert is offered today because it saves costs, and all other benefits are secondary. Statistically, Lenders have come to realize that their computers make the right decision more times than the human they have replaced. However, checking paperwork is still something that has to be done by a human, and therefore, if the number of pieces of paper can be reduced, so can the number of people needed to check them.
The lenders would probably say that the savings they make allow them to offer cheaper and better products and keep fees down. In the current economic climate, this would appear to be doubtful, and many would disagree.