Self Certification Mortgages or Liar Loans?

UK (SANEPR.com) July 22, 2008 -- Brighton, UK (SANEPR) July, 21, 2008.

Self certification mortgages have long been used by those who are self employed or unable to prove their income.

Self cert mortgages have been invaluable in the last ten years especially, as the number of self employed people in the UK has grown - we can site Dragons Den for one reason why and everyone thinking that they can be a property developer as another.

With the self employed in mind, self cert mortgages have grown in demand and in flexibility now being offered at both a fixed rate, tracker rate and variable rate. Although the rates have always been slightly more with a self cert mortgage than regular mortgages, this has, in recent years, been a smaller percentage than that of years gone by.

With self certification mortgages readily available, many have seen this as a way to finally buy a family home and the years of saving have paid off. Many will have spent time working out how much they can afford, knowing that at times being self employed means that income is not always regular, and so have carefully worked with their mortgage broker to find a rate and mortgage that suits their needs. These people have successfully obtained a self certification mortgage, having presented facts for their borrowing including accounts and other relevant documentation. And one would hope that they are happy in their new home.

There are the other sort who have seen self certification mortgages as a way to deceive and lie to get onto the property ladder.

In a recent finding it was reported that mortgage brokers up and down the country were encouraging self certification mortgage applicants to lie as a way of getting a larger mortgage. These mortgage brokers where then clearing checks, even though they know that in reality these people could not afford their mortgages and therefore would be in danger of NOT meeting repayments.

In a recent story a mortgage broker was fined £10,500 for completing ‘liar loans’ on self certification mortgages and given a severe warning by the FSA.

James Whittaker of Bournemouth, applied for a self certification mortgage and lied in order to obtain a larger mortgage.

“From the minute I have doubled how much I earned on the application form, I know that I was going to regret this” explains James. “My broker and I discussed my options, knowing that as freelance illustrator my options would be limited as my income was not always consistent. I had been fortunate enough to save around 15K and already had an existing mortgage on a studio flat. I think that when I waved this in front of the broker he saw pound signs and then I got greedy. I am now struggling to make ends meet and I know that I am going to have to sell up before I get myself into any more debt”.

James’s story is true of many who have been lulled into a false economy by the credit community that we have been living in. If you can’t have it because you can’t afford it, get it on credit and then you can. Sounds simple, but this is what is landing so many, in hot water.

Self certification mortgages are great for those who are not going to abuse the system, but there are always those who think that they are above the law and are not going to get caught out by systems that are in place to ultimately protect the borrower.