Self-Certified Mortgages (Non-Status Mortgages)

Getting a mortgage can be quite challenging if you’re dealing with financial difficulties. 

Lenders need evidence that you can repay the loan before they are willing to provide it. However, providing proof may not be possible in some circumstances.

Self-certified mortgages (also known as non-status mortgages) were an option that allowed people to meet financial requirements by taking out a mortgage without needing to prove that they could repay it.

However, it was easy to misuse such loans as there were no checks, and borrowers did not have to meet the requirements that are present in standard mortgages today.

That is why they were banned by the Financial Conduct Authority (FCA) in 2009 and are no longer available. 

This guide takes an in-depth look at how these mortgages functioned and what alternatives are currently available. So, make sure to read until the end!

What Are Self-Certified Mortgages?

Self-certified mortgages, often known as self-cert or self-certification mortgages, were available for homebuyers in the UK before 2009.

Self-certified mortgages were designed for individuals who were unable to provide proof of income to lenders for a regular mortgage.

Such people generally included contractors, freelancers, company directors, and others with non-standard income.

To get a self-certified mortgage, an individual would just have to declare their income without providing any proof for the same.

This means that all an applicant had to do was provide their signature as certification confirming their salary.

Thus, the risk with such mortgages was much greater than with traditional loans, as people could simply make up or inflate their salaries to get approved. 

Why Are Self-Certified Mortgages No Longer Available?

During the financial crisis of 2008, the FCA decided to undertake a comprehensive review of the mortgage market.

It discovered that self-certified mortgages were high-risk offerings even if lenders charged high-interest rates, as there was no way to ensure the loans would be repaid.

In fact, they were being abused to such an extent that they became known as ‘liar loans’. 

It is also suspected that offerings like self-certified mortgages were responsible for the 2008 credit crisis to a certain extent.

That is why the FCA introduced responsible lending guidelines that made it the responsibility of the lender to assess the repaying capability of all mortgages and banned self-certified loans. 

Getting A Self-Certified Mortgage Overseas

Some lenders still offer self-certified mortgages outside the UK, where the regulations of the FCA do not apply.

However, the financial regulator has issued a formal warning against using such offerings to meet financial requirements because of the high risk involved.

Such loans usually have hidden charges, fees and high-interest rates, and lenders are more likely to indulge in fraudulent practices.  

It is better to consult a mortgage expert before considering such mortgages. Also, lenders in the UK now offer several financial offerings that can meet the needs of self-employed people.

Borrowing from these lenders ensures greater financial safety as they have to follow the rules and guidelines of the FCA. 

Alternatives To Self-Certified Mortgages

Several types of mortgages are available nowadays for self-employed people, which are much safer than self-certified loans. These include:

1. Self-Employed Mortgages

Many lenders specialise in providing loans to the self-employed, for which they can customise their existing offerings to meet your needs. 

2. Company Director Mortgages

Director Mortgages are available for borrowers who have profits retained in their business and plan to use them to meet the mortgage requirements. 

3. Low-Income Mortgages

Low-income mortgages are suitable if you can provide proof of low income pertaining to a specific period. 

4. Buy-To-Let Mortgages

Buy-to-Let mortgages are used for purchasing property for investment purposes rather than for residential purposes. Such mortgages may not always require proof of income from employment if you intend to repay them using rental income earned from the property. 

5. Guarantor Mortgages

You can opt for a guarantor mortgage if a friend or family member is willing to provide a guarantee to the lender that the loan will be repaid. In such instances, the repayment becomes the responsibility of the guarantor in case you fail to pay the loan back.

6. Asset-Based Mortgages

Asset-based mortgages are another alternative to self-certified mortgages, but they are only available for individuals with high net worth.

7. Commercial Mortgages

Lenders offering commercial mortgages are not as strictly regulated as in the case of other loans, so the terms and conditions for such offerings might be more flexible. 

8. Remortgage

It may be possible to remortgage a self-certified mortgage into another type of loan that is currently available. 

Getting A Mortgage As A Self-Employed Person

While self-certified mortgages are no longer available, it is still possible to get a mortgage as a self-employed individual. There are no special offerings for such people, as all standard mortgages are available to them.

The difference is that providing evidence of income to the lender will vary for self-employed individuals than regularly employed ones. 

For self-employed individuals, lenders usually require accounts for the last two to three years that provide information like expenses, income, and operating expenses.

The chances of getting your application approved increase with the amount of information provided to the lender.

This information will be used by the lender to determine whether you can repay the mortgage. An underwriter will then assess the overall application and verify whether they feel you can afford the loan or mortgage.

This is why finding the right lender who can assess your case in the most favourable view is essential.  

FAQs

1. What types of income do lenders accept when assessing self-employed applicants?

If you’re applying for a mortgage as a self-employed person, you can use any of the following types of income for the loan application:

• Pension income
• Rental income
• Investment income
• Share of net profit
• Dividends and salary

2. How can a self-employed person provide proof of income when applying for a mortgage?

Self-employed people can provide proof of income to the lender through the following documents:

• SA302 tax returns
• Certified accounts for two to three years, in the case of a sole trader or partnership
• Complete company accounts for directors of a limited company

3. Are self-certified mortgages expected to return in the future? 

It is highly unlikely that self-certified mortgages will be available again in the future, as the potential for their misuse is huge. Making them available would put the entire economy at risk.   

4. Do self-employed people have to pay higher interest rates?

The interest rate for a mortgage generally remains the same for a regularly employed person and a self-employed one. However, the lender should be satisfied that you can repay the loan before they approve your application.

5. How can you improve your chances of getting a mortgage as a self-employed person?

There are several things that can be done to improve your chances of getting a mortgage as a self-employed person. These include saving up for a larger deposit, improving your credit score, avoiding taking additional credit, and repaying all outstanding debts. 

Final Thoughts

Before they were banned in 2009, self-certified mortgages were one of the few options available for self-employed people to get a loan easily. However, their negative impact on both borrowers and lenders was detrimental to the economy as a whole.

Fortunately, the number of options available for such people nowadays is much greater, and these mortgages are not as risky as self-certified loans. That said, it is still recommended to consult a mortgage specialist when applying for a loan as a self-employed person.

They can not only help you find a suitable lender but also guide you through the application process, making it easier to get the loan application approved.

Your home may be repossessed if you do not keep up repayments on your mortgage.

All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.