Article Title: Young, Self Employed, No Accounts And No
Savings. How Did I Get A Mortgage?
Author: Richard Evans

I was having considerable problems getting a mortgage to buy my
first home about four years ago. If I was to believe everything
I had heard, I was the ideal candidate for a mortgage - young,
a first-time buyer and with an annual income of about £30k.
Easy!

No, not easy, actually. Being young with a leaning towards
enjoying myself, I had no savings - nothing to use as a
deposit. But what about these 100% mortgages I had been hearing
about? Surely I qualified? Oh, there was something else - I was
also self employed with no accounts.

Self employed with no accounts and no savings.

Could I get a mortgage? It was virtually impossible. Not a
single High Street lender would give me a mortgage. Even my
bank who have had my services for ten years turned me down;
even though my bank knew exactly how much I earned each year
and how much I spent each week; even though my bank knew that
making the monthly payments on a repayment mortgage would not
be an big problem for me.

Then I heard about Self Certification Mortgages.

What is a Self Certification Mortgage? It's essentially a
mortgage whereby you decide whether or not you are capable of
making the repayments. And that is when the penny dropped,
because you see the entire process of applying for a mortgage
is premised upon an institution (such as your bank) deciding
whether or not you are able to make the monthly repayments.

And what is the formula for working this out? Well, if you are
employed it is your salary - a bank will lend you, say, 3 or 4
times your annual salary. Normally they will ask you for a
small deposit, say 5%, to demonstrate that your intentions are
serious.

Obviously, if you are self employed, and particularly with no
accounts, you often do not have an annual salary and you are
unable to demonstrate regular monthly income. Many self
employed people - notably me - live hand-to-mouth, regularly
waiting for reluctant clients to settle outstanding invoices.
So how can your ability to repay a mortgage be judged? I
discovered that self certification was the answer - i.e. YOU.
You make a judgement as to whether or not you are borrowing too
much money and whether or not you will be able to afford the
monthly repayments. After all, if you are bright enough to run
your own business, manage your own tax affairs, handle
purchasing and invoicing, surely you are bright enough to work
out whether you can repay your mortgage!

Think about it - conventional, salary-based mortgages are
judged on the basis of what a person has earned in the past,
but a person could be made unemployed within hours of securing
a mortgage. On the other hand, Self Certification puts the onus
on you predicting what you will earn in the future. Sure, you
could go out of business, but a salaried person could also lose
their job.

So I thought, well this is good, but I bet that a Self
Certification Mortgage is the stuff of loan sharks, with huge
interest rates, crushing monthly repayments and
Guantanemo-style penalties.

But there was something else I discovered about mortgages.
Although the High Street is swamped by lenders, there are only
actually a very small number of 'actual' lenders: the majority
are intermediaries acting on their behalf, because the number
of mortgage applications is so great that intermediaries are
required to perform the process of judging each applicant and
assessing risk.

So I discovered that whereas a High Street lender would turn me
down, a smaller lender might accept me. But get this: the
mortgage that I actually received from the small lender at the
end of the day was exactly the same as the mortgage which had
been refused me by the High Street lender! Only the forumla for
judging my ability to repay the mortgage was different, not the
mortgage itself!

So what's the catch with Self Cerftification? There is always a
catch in my experience, and in this instance it was a very big
catch. Whereas a regular mortgage requires the borrower to
contribute a deposit of, say, 5%, my Self Certification
Mortgage required a deposit of 15%. Fifteen percent!! Of course
I can see why they ask for this, why if you are not being judged
using the conventional formula you are expected to show some
serious committment. But I didn't have any savings. I was young
and self employed for crying out loud.

So what did I do? Okay, I would not recommend this to
everybody, but I was desperate for my own home and I knew that
I could afford the repayments. I took out a Personal Loan
shortly before my mortgage application and, supplemented with a
timely invoice payment, I was able to pay the deposit and afford
the key refurbishment costs on the property (roof, re-wiring,
plumbing etc).

On the High Street this would be called a Home Improvement Loan
and acquired AFTER you have obtained a mortgage and purchased
the property. I simply borrowed a little more in the form of a
Personal Loan before I had acquired a mortgage. I was fortunate
in that I could afford to carry the costs of these repayments
for the forseeable future and I had bought on a rising market -
the value of my property was already more than the mortgage and
personal loan combined before I had even finished the
refurbishment (ie. 4 months after buying the property). I would
not recommend this to everyone, and you have to be very, very
clear about how much you are borrowing and what the total
repayments will be.

However, getting on the property ladder and having my own home
was the most important thing to me, and it just goes to show
that if you look beyond the High Street you can actually find
the same or similar financial products but with less of the
hassle. The High Street had always made me feel inadequate, a
financial failure

You might be interested to know that, because I was still
looking for the catch in my Self Certification Mortgage, I went
to a respected, independent financial advisor recently (on the
High Street as it happens) and asked if I should change my
mortgage to something better. His advice was that I had got a
very good mortgage deal and that I should stick with it for the
forseeable future. So I have.

Richard


About The Author: Richard Evans now assists in the running of a
financial introducer http://www.HallamFinance.com and the loan
and mortgage directory http://www.LoansUnited.com. Please give
these sites a visit, especially http://HallamFinance.com if you
are actively looking for a Self Cert Mortgage in the UK.