One key casualty of the 2008 credit crunch and property crash, the “self-certified mortgage”, is staging a comeback. Often referred to as “liar loans”, these mortgages were traditionally given to people without proof of regular income, such as the self-employed or those who did contract work. As the name suggests, all that was required to get one of these mortgages was to declare your income, with little or no need for proof.
The abuse of these loans has been blamed for contributing to the financial crisis – at the height of the boom in 2007, they accounted for more than 50% of new lending – and so they have since been effectively banned by the watchdog, the Financial Conduct Authority (FCA), under rules designed to prevent people from taking on unaffordable mortgages.
But a small start-up thinks it has found a way around the ban. “Selfcert.co.uk”, currently just a domain name with a “coming soon” message, “is to skirt these rules by acquiring a licence from [a non-specified] eastern European country, which will allow it to lend in the UK as long as it conducts business from that country”, writes Holly Thomas in The Times. Selfcert.co.uk is set to unveil a tracker loan on 2 January 2016, at 2% above the Bank of England’s base rate.
The maximum loan amount will be £500,000 and people will be able to borrow up to 85% of a property’s value. Borrowers will not have to provide any proof of income, as the company will accept customer-verified invoices, although loans will not be available to buyers in London and Greater London, as, says owner Graeme Wingate, “we feel there is a price bubble in these areas”.
Wingate, who previously owned a payday lending site, says clients’ ability to make repayments will be assessed through “mystery shopping” visits to their businesses and through analysis of their social media accounts, because “you can tell so much about people and their lifestyle from their social media pages”.
As the business is carried out online and “at a distance”, Selfcert.co.uk’s mortgage services will not be regulated by the FCA and any disgruntled customers will have no recourse to the financial ombudsman, warns an FCA spokesperson.
If you are self-employed, what are your other options? Halifax and several smaller specialist lenders will now consider self-employed borrowers with just one year of accounts (ratherthan the traditional three), while Clydesdale Bank is willing to take into account past employment in the same field. But whatever your situation, says Dominik Lipnicki of brokerage Your Mortgage Decisions, make sure you have up-to-date and accurate accounts.