The clear separation between traditional and self-cert mortgages has blurred in recent years. With the increased number of individuals who are considered self-employed, an incredible two million United Kingdom residents or more, lenders are becoming more willing to work with these individuals.
Underwriters and lenders have re-evaluated their thinking when it comes to self-employed clients and have even started to market to this demographic. With growing rivalry in this area, self-employed individuals seeking a competitive mortgage are seeing lower interest rates as well as more options.
Non-status mortgages, also known as self-cert mortgages, self-status mortgages, or self-declaration mortgages, are beneficial for individuals who struggle to prove their income because they do not have mainstream occupations or set hourly wages or salaries.
These individuals may include management consultants, accountants, engineers, contractors, and busi, just to name a few. Aside from the self-employed, non-status mortgages can also be beneficial for those who work off commissions or receive large amounts of money in the form of bonuses.
An example of how non-status mortgages work is by looking at an individual who earns a salary of £50,000 and also brings in an additional £50,000 in commissions and bonuses. Traditionally, lenders will only look at half of the additional income, bringing the total income to be evaluated to £75,000.
Although this is not the full amount the individual earns per year, this is the amount the lender will base the mortgage amount on. A non-status mortgage, on the other hand, enables the individual to borrow funds based on the full £100,000 they earn, counting the full amount of commission or bonuses.
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Although these types of mortgages may seem like the only option for self-employed individuals, there are some alternatives that can be researched.
One of these alternatives is what is known as a “fast track” mortgage. For this plan, individuals will not need to provide any proof and documentation on income during the application process.
But, lenders offering this type of mortgage usually state that they “reserve the right to require proof of income” in order to perform periodic checks to make sure the system is not being abused.
Compare a full range of mortgages for first time buyers, home movers, buying to let, remortgaging and more to find the best mortgage rates.
Another alternative, shockingly enough, is traditional mortgages. The recent increase in self-employed individuals has caused standard mortgage lenders to relax their requirements and make this a more accessible option for those clients.
Historically, lenders would ask for almost a full account history but, with recent changes, lenders are now accepting two year and even one year account histories when individuals apply for a mortgage. Lenders are currently more willing to base their decisions on affordability rather than the individual’s set salary.
For self-employed individuals, the easiest way to get the best mortgage deals and rates is through a mortgage broker. Although any mortgage broker will be able to assist, it is important to look for a broker who has access to the entire market and is able to arrange a number or different mortgage options.
A mortgage broker who specialises in non-status or bad credit mortgages can shop the market for options that will fit the client’s individual needs, help them compare different mortgage deals, lenders or underwriters and give advice for choosing the best option.
Our friendly FCA-Qualified advisers will help you get the right product for your circumstances.
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