Self Certified Buy To Let Mortgages
Banks or building societies offering buy to let mortgages require a percentage of the monthly mortgage payments to be covered by at least 100 percent of the monthly rent. Most lenders demand 125% rent to mortgage ratios which limits the mortgage amount the lender will be willing to loan you.
Although this rent to mortgage ratio is designed to protect both the lender and borrower from defaulting the mortgage repayments during void periods, many buy to let investors require mortgage amounts that exceed these ratios.
In these cases, the bank deems that the mortgage isn't being sustained by the rent and therefore need to look at the borrowers income to ensure that the buy to let mortgage payments will be met.
Evidence of income
When you apply for a mortgage, the banks and building societies generally want you to present evidence on a variety of information, particularly proof of your income. If you are employed, you may present your last three months' pay slips and your last P60. But if you are self-employed or it can be difficult to prove your income.
Fortunately there are schemes available that enable you to declare your own income with minimal verification by the lender. This type of loan is termed a self-certification mortgage.
UK self certification mortgage products have enabled people to obtain mortgages who otherwise would be turned away from mainstream lenders because of inability to provide sufficient proof of income. During the last few years, low interest rates, rising property prices, higher immigration, changing employment patterns and increasing competition in the mortgage market, have helped to fuel a rapid expansion in the self-certification mortgage market.
Self certifying income
A self-certification mortgage is any mortgage where a borrower (or their financial advisor, or accountant) certifies their annual income, without need to provide other documents.
For those seeking self certification buy to let mortgages, be aware that if you have an accountant who is not chartered or certified, or your accounts are self-prepared, the lender will not accept your certification of having earned the specified income. In most other self-certified mortgages, the lender will not require further proof other than the certification. In any case, you should not take this as a license to lie about your income; it only means the lender will take what you say and use it as basis for lending to you.
Risks in overstating income
There are significant risks in securing a mortgage that is beyond your means.
Lenders will still verify self certification mortgage applications through income checks, credit reference agencies, and other means. There is plenty of electronic information about borrowers that lenders can easily access. Still, lenders and mortgage brokers recognise that a good number of self certification mortgage applications show overstated income details. This is particularly evident in 'true' self-certification mortgages which require only a guarantee of affordability.
There also are disadvantages to consider. Self cert mortgages may be subject to higher arrangement fees and redemption penalties. The terms vary considerably from one lender to another, thus you will be better served if you seek the assistance of a mortgage broker to help you find and negotiate the best deals with lenders.
If you are compelled to stretch the truth about your income, you should know that, by itself, this not necessarily a problem. However, your mortgage broker should explain that stretching beyond your means can cause problems when interest rates increase or you lose your ability to meet mortgage repayments through void periods and changes in personal circumstances.
