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Changes to Self Certified Mortgages in 2011

A self certified mortgage is a somewhat generic term given to a mortgage to requires little or no proof of income. It's designed for self-employed people who wouldn't otherwise earn a fixed amount each month, but are still earning somehow. Self certified mortgages in 2011 have changed from what they used to be, making it difficult for self-employed people to obtain a mortgage.

Audited Accounts and Interest-Only Mortgages

For self certified mortgages in 2011 you'll need to produce 3 years of audited accounts before being considered for a mortgage. If you want to change to an interest-only mortgage but are (or were up until recently) considered self certified you might find yourself unable to move home.

Justifying Income

The problem most self-employed individuals face with self certified mortgages in 2011 is the ability to prove their income. Anyone in employment can produce a variety of wage slips across any period to prove their salary, but self-employed individuals encounter a lot more barriers; they need to prove where every penny comes from, which can be difficult if it is from a variety of sources, prove tax allowances or simply meet the range of criteria offered by lenders.

Not every provider bases self certified mortgages on the same set of rules - some will take drawings/intake into account, whilst others will only take annual net profit as income. For those considered on annual net profit, tax allowances won't be counted, so net profit will be incredibly small compared to drawings or overall disposable income due to tax allowances. In addition, the source of income can also be a problem; if someone trades aboard or receives money through a foreign currency, or not all earnings are taxed, they'll find it difficult to report all of this to the lender.

FSA Ban of Self Certified Mortgages in 2011

A huge majority of self-certified mortgages in 2011 have been taken off the market because of the FSA (Financial Service Authority) allowing self-employed individuals to receive loans and frowning on the practice of self-certified mortgages. As expected, rates for self-certified mortgages are a lot more than a normal mortgage; the lender sees self-employed work as higher risk, because income is never fixed, so the interest can be a lot higher.

An FSA investigation found that the vast majority of mortgage arrears where from people with a self-certified mortgage who simply couldn't afford to pay - either due to the interest rates or the nature of being self-employed. With the withdrawal of most self-certified mortgages in 2011 it's even more difficult for self-employed individuals, especially freelancers and contractors, to obtain a mortgage with decent rates.

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