Self Certification Mortgage Market

What is self-certification?
Whilst traditional mortgage lending normally requires a prospective borrower to provide proof of their own level of income, self-certification mortgages are designed for people who are unable to do this, or who have a style of income which differs from the traditional annual salary on which an employer can provide a reference. Self-certification means precisely that - the borrower certifies that their income is at a specified level and no accounts or references are required to back this up.

So who is self-cert designed for?
The self-employed and those who derive their income from more than one source are often viewed as forming the traditional core of the self-certification market. This is particularly true when we look at those people who have been running their own businesses for a year or two, but are not in a position to provide the three years of audited accounts that a traditional mortgage lender will usually require when accepting a mortgage application. However, there has also been a steady growth over recent years in the number of people who work on contracts where their income may vary from time to time, as well as those whose income depends to a greater or lesser extent on payment of bonuses and other variable payments.

How big is the market?
Latest figures from the Office of National Statistics (ONS) show that, out of a total working population of 28.8 million, around 3.7 million people are currently classified as self-employed and over 1 million also have more than one job - a combined group which accounts for over 16% of UK workers. The wider grouping of people who work on contracts, who depend on bonuses or commission, or who are directors of small businesses which are in their early years of growth (and where the type of accounting or earnings figures traditionally required by mainstream lenders are not always available) takes the figure up to around 10 million people.

Developments in 2006
There is a high degree of interest in the self-certification sector of the mortgage market at the moment and, at UCB Home Loans, we have undertaken a good level of specialist lending in this sector during the first few months of 2006. Increased competition is forcing keener pricing, with rates being much closer to those in the mainstream mortgage market, and it is likely that this trend will continue as the year progresses. That may be sustainable if the economic fundamentals remain favourable; if these change, then the risk may start to emerge.

There's likely to be more variability on rates and charges and it's important that the borrower clearly understands the choices and consequences. There's a limit to how cheap a mortgage can become and, a number of apparent rate reductions have been subsidised by significant increases in application fees.

As far as the size of the market is concerned, we are not expecting any major shifts over the coming year. There has been some growth over the past few years in the number of people who are self-employed, earning bonuses, or earning variable levels of income, but the broad size of the market is expected to remain relatively stable in the year ahead.