Mortgage products are currently being pulled from the shelves at a record rate. While borrowers were spoiled for choice only a few months ago the number of products on offer has nearly halved – from a peak of thirteen thousand to approximately seven thousand. Mortgages for the self-employed have not escaped the mass recall meaning that borrowers without a salary or wage may find it tough to secure a mortgage in the near future.
During the early 2000s self-certification mortgage products were made widely available to applicants with non-standard incomes. While they were initially targeted at the self-employed, they were also heavily utilised by employed applicants who exaggerated their incomes in order to secure bigger mortgages. This was made possible by the lack of documentation required to back up the claims of applicants, a fact that some mortgage brokers took advantage of in order to do more business.
It seemed that lenders were willing to approve mortgages to almost any applicant despite the absence of evidence of their declared earnings. Many applicants also had impaired credit files and small deposits. Traditionally the combination of at least two of the above factors would have excluded applicants from obtaining a mortgage from any lender, however, the loose lending criteria of the past decade reversed the situation. The effect is that many homeowners now have mortgages secured against properties that they can’t afford or that have fallen into negative equity.
The impending credit crunch, which has already claimed the scalp of one of the UKs largest self-cert mortgage lenders, has frightened other lenders into tightening the lending criteria of their self-cert products or removing them from the market altogether. Unfortunately for the genuinely self-employed, this means that there will be a reduced choice of products to apply for when buying a home or remortgaging an existing property.
The number of self-employed mortgages available has reduced significantly with many small lenders specialising in this field closing up shop. Larger lenders, such as the major banks and building societies, have begun to tighten the criteria in which they will lend to the self-employed. This includes capping the home loans to a maximum value and reducing the income multiples to more traditional levels. This means that self-employed applicants, who were the original target market for self-certification mortgages, will now pay the price for lenders issuing this type of mortgage product to millions of home owners who should have applied for standard products instead.
With the reduction in the number of self-certification mortgages available on the market and the tightening of the lending criteria on those that remain, genuinely self-employed home owners and first time buyers will now find it more difficult to find products to suit their requirements. If lenders wish to assist self-employed applicants with steady, high-level incomes in their endeavour to remain active on the property market they may wish to reconfigure their self-cert products back to their original status which made them available to only the self-employed. This would ensure that self-employed workers, of which there are millions in the UK, are not treated unfairly by the credit crunch and its effects on the mortgage market.
