Director of award-winning Charles Conran financial services SIMON HUGHES looks at self-certification mortgages and asks who can benefit from them?

The term selfcertification (self-cert) refers to when a mortgage applicant states his or her income and the mortgage lender doesn't ask for proof of this income, instead they do checks to ensure affordability, credit worthiness and that the stated occupation fits the salary disclosed.

In the past, in a minority of cases, false incomes have been agreed on application forms. An example of this would be a cleaner inflating their earnings to an unrealistic sum such as £80,000.

This is strictly illegal and can be construed as mortgage fraud.

Agreeing to a claim with a false income is unfair to both the lender and more importantly to the client. How can someone possibly afford to make the repayments of a loan based on a false income?

Self-cert mortgages are a fantastic option for self-employed people as they usually have an accountant working to reduce their tax where the books will show a low net profit.

A lender for a self-cert mortgage will take all earnings into account including dividends, where a lender for a more traditional mortgage may only take into account the net profit of the company.

Other occupations which suit this type of mortgage are commission-based or bonus-based employment.

The traditional lender may not take all of the commission into account whereas the self-cert lender will.

Clients who have three or four jobs will also benefit from this type of mortgage because a self-cert lender will take into account all earnings.

Likewise clients who own a portfolio of properties which generates a large income, which a traditional lender won't always take into account, will be served well by a self-cert lender.

Self-cert mortgages are not the only option however for people in the situations mentioned above.

We had a client recently who saw an adviser who recommended a self-cert mortgage because the client required 5.3 times his income to purchase a property.

The self-cert rate offered was 5.09 per cent and his income had to be inflated by £10,000 in order to achieve this.

However, after doing an affordability check with this client we found a high street lender who was willing to lend the required amount at a much better rate of 4.29 per cent.

This made a saving of over £100 per month for the client.

I would recommend anyone who wants advice on the best mortgage for their circumstance to see a true independent adviser to ensure you get the best from the 50,000 or so products out there.

  • Simon is happy to answer your mortgage queries, email them to ljfilotrani@london.newsquest.co.uk