A better self service

If you are among the 3 million-plus self-employed adults in the UK, the barriers against getting a competitively-priced mortgage are being swept away.

Mainstream lenders have traditionally asked the self-employed or anyone with irregular earnings such as contract workers or commission-based employ ees to provide proof of their income to ensure they can afford to pay off the debt. People who don't fit standard income criteria might either be turned down for a loan or charged over the odds for it.

"We see hundreds of clients each year, from actors, dancers and professional sports persons to taxi drivers and waiters, for whom proving their income is a near impossibility," says Robert Clifford, managing director of independent broker Mort gageforce. "Many of these groups receive significant income which is either difficult to evidence or which they are anxious to keep confidential for perfectly legitimate reasons."

But things are changing. In recent months, large numbers of lenders have relaxed their lending criteria as far as such applicants are concerned. So it is no longer the case that to obtain a mortgage, the self-employed have to produce two or three year's worth of audited accounts to prove their income level and pay a premium for the privilege of borrowing. "Some lenders now simply accept an accountant's certificate saying you are good for the loan and their mainstream proposition includes products designed for the self-employed which attract the same incentivised fixes, caps and discounts as standard mortgages," says Mr Clifford.

Self-certification mortgages, which ask simply for a declaration of income on which no checks are made - once the province of a few very specialist lenders - are now increasingly available from standard banks and building societies.

David Bitner head of mortgages at high-street IFA The Marketplace, says: "Though it's not generally well known in the public domain, brokers are well aware that if you are self-employed with a sizeable deposit wanting to borrow less than 75% loan-to-value (LTV), then some mainstream lenders, including the Halifax, Abbey National, Northern Rock (80%) and the Woolwich (70%), will make no checks at all on your income claims, so long as they appear realistic. And you'll be able to choose from the entire mortgage product range at standard rates."

The main reason for these big players dropping income checks on applicants wanting relatively low LTVs is to make administrative savings, not to attract swathes of new borrowers who, for whatever reason, can't or don't want to provide proof of income, he says. Hence, little publicity for their change in underwriting policy.

"You can also argue that these lenders are not offering true self-certification loans because they reserve the right to make income checks if an income claim looks suspicious or does not tally with the applicant's credit record," he says. Some also impose other restrictions.

Examples from Mortgageforce include an attractive 4.49% fix to 1.12.2003 with a maximum LTV of 80% from Northern Rock, but which requires the self-employed to have been trading for two to three years, and a 3.99% fix to 31.12.04 with maximum 75% LTV from the Halifax, but with a requirement to see six months' worth of bank statements. "The Halifax deal is good for employed people who can't prove commission or bonus or additional cash income via payslips as bank statements could well demonstrate this," says Mr Clifford. "But for the self-employed this is not a good self-certified mechanism, as the requirement for bank statements is felt by clients to undermine the point of self-certification."

In contrast, specialist lenders in this market such as UCB Home Loans, Bank of Scotland, Birmingham Midshires, Mortgage Express and latterly the Royal Bank of Scotland, which launched two self-certification mortgages this July, do not reserve the right to make income checks. "They are happy to accept whatever the borrower discloses," Mr Bitner says.

But, though the gap is closing, self certification mortgages are still in general more expensive. So if you can prove your income, you may get a better deal with a standard loan.

Lenders also tend to mitigate the risk of self-certification lending by stipulating a low maximum LTV, so borrowers without much of a deposit, such as first-time buyers, will have their choice restricted.

Among the best self-certification deals for first timers is a 4.99% fix until December 2004 available to a 90% LTV from Mortgage Express and a two-year 4.99% fix available up to 85% LTV from the Bank of Scotland, which allows legal fees and stamp duty to be added to the loan. It can be argued that self-certification loans are an open invitation for consumers to kid themselves they can afford much higher monthly payments and over-commit themselves, but honesty about your income is advised.

Mr Clifford says: "We take a very dim view of clients looking to exploit self-certification to overstate their genuine income.

"This would clearly represent dishonesty and in such circumstances the lender would be entitled to seek repayment of the loan in full by forcing the sale of the property.

"The lender's legal redress aside, it is also an extremely risky business as someone borrowing significantly more than standard rules allow is very unlikely to keep up payments. This invariably leads to default and in some cases repossession."

For people who feel uncomfortable disclosing their income at all - perhaps their earnings are high but their taxable income is low - self-status loans which require no income declaration on the application form are available from a handful of lenders.

Sun Bank, owned by Portman Building Society, for example is offering a self status tracker loan at bank base rate plus 0.74% , currently 4.74%, until November 2004 up to a 75% LTV or a fixed rate of 4.99% over the same period up to 85% LTV.

And GMAC is charging a standard variable rate of 5.74% on self status loans up to 90% LTV with discounts on lower LTV loans, though this is not available to first-time buyers.