Self Certification Mortgages Uk

Borrowers Warned Over Risk of 'Liar Loans'

Some brokers are using loopholes to allow people to self-certify their annual earnings – and they could be putting borrowers’ homes at risk.

In 2007, the year that UK housing boom peaked, more than half of all mortgage lending consisted of so-called ‘self-certification’ loans – products that allowed borrowers to ‘self-certify’ their annual earnings without documentary proof.

They effectively allowed people to overstate their income and were blamed for playing a significant role in the later collapse of the housing market.

Not only do these loans put homes at risk, but they encourage borrowers to commit fraud.

And now, thanks to some loopholes, self certification seems to be back – according to a Times Money investigation into mortgage brokers.

Some brokers have discovered one way of getting past the proof-of-income hurdle is to advise borrowers to take out buy-to-let mortgages designed for landlords. In this case, certain lenders don’t require proof of income, just proof of how much rent the property is expected to generate.

Another means is to exploit so-called ‘Fast-track’ mortgages. Under this system, if a customer is considered low-risk, has a good credit score and a large deposit, mortgage lenders often decide not to ask to see proof of income. In this case, brokers who arrange these deals are supposed to confirm proof of income, but some do not fulfil this obligation.

Borrowers are now being warned that going down either of these routes could result in fraud.

The Financial Services Authority (FSA), the industry regulator, is concerned that 30% of mortgages are now being completed without the proper documentation of the borrower’s earnings.

The FSA has proposed to ban mortgages sold without proof of income, but banks have voiced opposition to the proposal, saying it would unfairly disadvantage the self-employed.

More details about the FSA’s planned mortgage reforms are expected in the autumn.

Speaking on behalf of the FSA, David Geale commented: “Customers should not misrepresent their income in mortgage applications and they should avoid the temptation of using a buy-to-let mortgage to buy a property that they intend to live in themselves. Deliberately misleading a lender in this way is tantamount to mortgage fraud.”

Moneyhighstreet comments : “Though not having to produce proof of income may sound tempting, the risks far outweigh the benefits. Not only can you lose your home, but you could be charged with fraud – not to mention what will happen to your ability to secure a loan in the future.

Articles 20VN | What Are Self Certification Mortgages? | self ...

Self-certification mortgages have been produced by mortgage lenders to let homeowners 'self-declare' or 'self-certify' their yearly earnings.

Self-certification mortgages were more aimed for the self-employed and homeowners who had small businesses, however could not justify their two years of income.

Are self-certification mortgages aimed at people with businesses only?

This is not the case as people who have an unbalanced income could be adequate for a self-certification mortgage. For example, people who have small businesses running this seasonally through the year or people who get paid more i.e. commission, would find it more difficult to prove their salary. Those who obtain large Christmas bonuses, or people whose salary comes from a total of different sources may also choose a self-cert mortgage deal.

What is the self-certification process?

Self-cert mortgages involve the borrower or borrowers to confirm how much money they earn when completing the mortgage application form. At times the borrower may not be told to prove this, the lender might ask for business bank statements to ensure the gross income received. Current mortgage holders will also be asked to provide some kind of identification and proof.

Why are self-cert mortgages more different to other standard mortgage deals?

If you were looking to take on a self-cert mortgage, you as a borrower would have to lay a heavy deposit and generally end up paying a higher rate of interest. Most lenders would need a big deposit, normally 75 - 85 per cent of the value of the property, as these figures tend to fluctuate. Interest rates are considerably higher to correspond the risk when giving out such loan.

Is it a good idea to false my earnings?

If you borrow money from a firm and decide to complete the application with trends of false judgements, this is a criminal offence. This part of the product has caused many problems before, and the Financial Services Authority have started to make further reviews. The FSA are people who analyse self-cert and their job is to encounter any fraudulent activity. Making false judgements will only cause the borrower to slip into debt and end up with bad credit history.

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