Credit crunch ‘contracting self-cert mortgages’

Posted 2007-10-25

Managing Director of the Association of Mortgage Intermediaries, Richard Farr asserts that in light of the recent credit crunch, self-certification mortgages may become less available than conventional loans. 

Self Certification Mortgages, informally known as “self-cert” mortgages, are available to employed and self-employed people who have a deposit to buy a home, but may lack the sufficient documentation to prove their income. Self-cert mortgages also provide access to loans for those individuals who might otherwise be rejected for other lending products – due to their inability to substantiate their entire income. 

Lenders will usually lend up to a fixed multiple of the borrower’s annual income as declared on wage slips and other documentation. However, self-cert mortgages have two disadvantages: the interest rates charged are usually higher than for normal mortgages and the loan to value ratio is usually lower. 

“Previously, this was a very competitive market - the market had been growing well,” Mr. Farr explained. “However, the emergence of the credit crunch has contracted the market.” 

Therefore, individuals who would normally look to a self-cert mortgage may need to seek alternatives, such as a secured home loan.

Mr. Farr further observed that self-cert mortgages have historically been a “very small part” of the lending market as a whole.

Until the lending sector settles down from the recent credit lending turbulence, for those with assets in the form of property, a secured home loan could prove to be their best choice - while alternative forms of lending may be less available.

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