THE last major lender to offer "self-certified" mortgages pulled out of the market last week, leaving four million self-employed facing a potential home-loan crisis, along with millions more casual and contract workers.
Platform, which is part of the Co-op Bank, was the last remaining lender to provide advances with no proof of earnings. However, a spokesman said it had no choice but to withdraw the deals after the Financial Services Authority (FSA) recently order
ed them to be banned.
The FSA believes, rightly, that during the recent credit bubble, self-certified loans were exploited to allow millions of borrowers, many of whom were not self-employed, to inflate their earnings, thereby stoking the property boom. They became known as "liar loans" and are blamed for precipitating the house price crash.
However, banning them will severely penalise millions of honest self-employed consumers, who until relatively recently were harshly discriminated against when it came to buying a home.
Traditionally, they struggled to get a mortgage because lenders would not accept their proof of income, nor advance them as much as they needed to get a roof over their heads. Many preferred to stay employed rather than branch out on their own and risk being barred from the property market, and the gains from rising prices.
Indeed, self-certified loans were specifically introduced little more than a decade ago to make it as easy for the self-employed to get a mortgage as for those with a salary from an employer, and banning them turns the clock back years.
Mortgage broker John Postlethwaite at Punter Southall said: "The self-employed are undoubtedly experiencing difficulties getting mortgages in the current climate, although there are things they can do to improve their chances and some lenders are more sympathetic than others."
This not only causes headaches for a family which has to move and where the breadwinner is self-employed, but the millions who took out self-cert loans are now stranded with nowhere to go.
At Birmingham Midshires, for example, the HBOS subsidiary which specialised in self-certification mortgages and other niche offerings, self-cert borrowers coming to the end of their deal must choose to either stay on BM's standard variable rate of 4.84 per cent or switch to a two-year fix at 5.49 per cent or a three-year fix at 5.99 per cent.
Hardly attractive, given borrowers elsewhere in the group can enjoy a standard rate of half this level. Lloyds, C&G and Intelligent Finance customers pay 2.5 per cent.
Furthermore, BM borrowers are not allowed to increase their mortgages at all.
Similarly at Platform, borrowers are swapped onto what is called a reversionary rate, priced at a margin above base of between 1.5 per cent and 5 per cent. With base rates at such low levels, this may not look too punitive, but it could be significantly more painful when borrowing costs begin to rise again.
Platform spokesman Andy Hammerton said it hoped to return to the self-cert market when the shape of the new FSA requirements became clearer.
He said: "There is a need for a self-cert-style mortgage, particularly to help the self-employed. But if we are able to relaunch one it will be on a small scale, more of a niche product, and not as widely available as they had become."
Mortgages expert Ray Boulger pointed out that consumers could face a considerable delay before it becomes clear whether these loans are to be permanently outlawed.
He said: "The FSA has begun what will be a considerable period of consultation, so it may think again when it examines feedback. Furthermore, it has indicated that the new regulations will not come into force until after the next election, in which case there could be further changes."
Fewer options and at a higher costTHERE are still two small, highly specialised lenders offering self-certified loans: Beacon Home Loans and Cheshire Mortgage Corporation.
Beacon only lends around £30million a month and most of that is lent on the first day of each month. A two-year loan charges 6 per cent and a three-year, 6.45 per cent. Cheshire mortgages can be more expensive, at around 10 per cent.
Mainstream lenders normally require two or three years' audited accounts, or an accountant's certificate. If these cannot be provided, they may be willing to accept the self-assessment tax form SA302, sent out to taxpayers by HMRC. Bank statements may also be accepted as evidence of earnings.
Even armed with all this, the self-employed may struggle to secure loans. As they can offset expenses, their audited accounts may not reflect actual income and ability to meet monthly outgoings.
Fluctuations in income – as during the recession – will also adversely affect ability to raise a mortgage for entrepreneurs, freelances and sole traders.
Clydesdale Bank is willing to consider the self-employed for mortgages but normally requires two years' audited accounts or three years' assessment statements.
Spokesman Jason Clarke said: "If someone comes to us without these things we will not reject them out of hand and will go through the full underwriting process to consider the full merits of each application."
Coventry Building Society will normally ask sole traders, partnerships and subcontractors for their latest accounts, SA302s or accountant's certificates for the latest two-year period.
In the case of first-time buyers, it will also want the last two months' personal bank statements.
A Coventry spokesman said: "We've tended to be fairly pragmatic and realise that, like all borrowers, the self-employed come in many shapes and sizes. We certainly will not discriminate against them and take the view there are many self-employed customers who are a good risk and should be able to qualify for the same mortgages as employed borrowers."
The Woolwich says it treats applications from the self-employed as it has always done, and that the credit crunch has not altered its approach. It requires two years' worth of accounts but, if these are not available, will try to be flexible.
Royal Bank of Scotland said it is happy to make its entire range of loans available to the self-employed, as long as they can provide evidence of earnings.
Nationwide and Dunfermline say they try to be sympathetic to the self-employed. Spokesman Steve Blore said: "We look at every borrower on an individual basis, and certainly do not discriminate against the self-employed. But in the current marketplace all lending decisions are more challenging than in the past."
It requires self-employed borrowers to provide two years' accounts but will consider whatever information is available.
