Was there ever a case for Self-Cert mortgages?
Posted by John Yerou
on May 16th, 2013 13:12pm in
Last Updated on December 21st, 2018 13:06pm.
The Self-Cert had no place for freelancers and contractors who qualified for contractor mortgages. Yet for tradespeople who didn’t qualify, self certification of earnings served its purpose.
Zero qualification often occurred when self-employed entities kept insufficient trading accounts. Or, like many freelancers, they worked on ad hoc projects and had no regular income.
So what’s to do now that the self-cert mortgage, or “liar loans” as they became known, are no longer available?
Contractor or Freelancer? It’s important to differentiate
What do generic High Street lenders class as a freelance contractor? Do do they appraise the role of a freelancer in a different light to that of a contractor?
For mortgage purposes, lenders categorise both types of tradespeople in a similar way. The titles themselves are ambiguous and many contractors call themselves freelancers. And vice versa.
So brokers can’t use roles as a differentiator. What we use to calculate affordability instead is the payment mechanism they use to earn an income.
What do we need to qualify for a contractor mortgage?
A contractor, for example, has a signed 3-, 6-, or 12-month contract, which details their daily or hourly rate. In this respect, there’s minimal difference between them and permanent employees.
To meet the criteria that qualifies for a contractor mortgage, self-employed contractors must:
- provide evidence of a contract stating hourly/daily rate, along with a CV;
- provide a minimum of three months’ bank statements that confirm their contract earnings;
- need to be ‘in contract’ at time of application, of which 4-6 weeks at least remains before it’s due for renewal.
In contrast, a freelancer would be somebody working on shorter-term contracts. By that we mean weekly, monthly or per assignment/project/booking, etc.
For example, a photographer’s income is often based on variable or non-regular earnings. In these difficult financial times, their income is even more erratic. Lenders take these uncertainties into account when calculating risk.
It follows, then, that circumstances remain whereby killing self-cert has left no viable alternative.
Too much abuse of self-certification mortgages
In hindsight, it’s easy to see why the FCA (or FSA, as was) wanted to act. By their nature, self-certification and fast-track mortgages were open to abuse.
Rather than kill them off, tighter controls on lending could have been the answer. Allowing flexibility for both the individuals and lenders, within guidelines, may have been preferable.
The FSA decided otherwise.
For many people with existing self-cert mortgages, the FSA’s rulings will cause financial hardship. How? By stopping them from moving to other lenders to secure better deals.
Contractor Specialist mortgage brokers
There are a select few “contractor specialist mortgage brokers”, like us, who’ve made bespoke arrangements with lenders. Our terms allow brokers to secure mortgages based on a multiple of your contract rate.
Such arrangements have little to do with governmental reforms, either. Lenders have the discretion to modify the criteria they decide qualifies as relevant earnings for lending purposes. So long as lenders retain that choice, the “contract based mortgage underwriting” we’ve negotiated will remain intact.
If you have a contract in place, then you’re in a healthy position. For those who’d hoped to self-certify earnings to secure their mortgage, you’ll be better off finding a good accountant, instead.
Author: John Yerou
John Yerou is the owner and founder of Freelancer Financials; a trading style & trade mark of the award winning Mortgage Quest Ltd. One of the most recognised names in providing mortgages for contractors and freelancers across the UK.
In 2004 John began his career in Financial Services as an independent mortgage adviser and broker. John has been instrumental in negotiating bespoke underwriting for contractors with high street lenders.
His presence in the industry as a go-to expert is growing by the day and he is regularly cited and writes in publications both locally and nationally.
Freelancer Financials Blogs
Request a Callback
Latest Blog Entries
- The Smart Way for First-Time Buyers to Save on Stamp Duty
- How does a BoE base rate rise affect my mortgage repayments?
- Even with payslips, High Street mortgages elude umbrella contractors
Finding a Financial Advisor who’s professional and knowledgeable is a bonus but one that you trust and feel comfortable with immediately is rarer still. I have recommended John to virtually all the other IT Contractors that I work with and will continue to use their services in the future.
Jakub Baluch.. IT Contractor
John Yerou and his team provided the brokerage service for my last 3 mortgages and I cannot rate them highly enough. No matter how large or small the request they always provide a speedy and professional response. I would never consider using another advisor/broker.
Roz Clifford.. Freelancer
We have been introducing Contractors and Freelancers to Freelancer Financials for several years now. They have established themselves as the preferred choice of financial advisors to all our IT contractors and Freelancers.
Bernie Potton.. SQ Computer Personnel (largest independent IT Recruitment Agency in the UK)
Andrew Saunders and Leanie Freed have provided an impressive service - one month from initial enquiry to completion of house purchase, with a mortgage from an established high street lender on a good interest rate. The service was clear, responsive and professionally managed throughout. Most importantly, Andrew understands the business context for contractors and this directly informs their approach to lenders
Bill Robinson.. Contractor (Management Consultant)