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by Michael Sterios, Mic

Several years ago self-certification mortgages were investigated by the Financial Services Authority. The FSA looked into the practises of mortgage brokers in the financial services industry as it was alleged that unscrupulous brokers were encouraging people to exaggerate their incomes on self-cert applications.

The investigation by the Financial Services Authority followed a report by the BBC's Money Programme which aired on television across the UK. The programme aired in 2003 and several mortgage advisors were suspended by the FSA because of the BBC's findings. Since then self-certification mortgages have been closely monitored by the authorities, the press, and other financial services industry analysts.

Despite the fact that the name ?self-certification mortgages? was slightly tarnished by the investigation and subsequent actions, this particular mortgage product has remained popular with UK home owners over the past few years. This type of home loan is regularly used by self-employed workers to fund the purchase of their homes as traditional products exclude them from the mortgage market.

The reputation of self-cert mortgages has remained strong regardless of the media's attempt to stain it. The Financial Services Authority has carried out several investigations into the mortgage industry since 2003 and has concluded that on the whole there are adequate controls in place to ensure that self-certification mortgages are not abused en masse by mortgage intermediaries. The FSA alleges that self-certification mortgages are prone to no more abuse than other products through activities such as exaggerating income levels.

Although the investigations have uncovered several brokers who abused the system and regularly advised their clients to lie about their incomes on their self-cert mortgage applications, brokers within the financial services industry were found, by and large, to respect the rules regarding this type of home loan.

While the positive reputation of self-certs has been maintained in relation to intermediaries and their clients, these mortgages have come under the spotlight again due to the credit crunch. Industry analysts, particularly in the media, have begun to question the validity of any mortgage product that is considered to be non-standard. This includes mortgages designed for people with bad credit as well as those that do not require proof of earnings, such as self-certs.

Some analysts are blaming non-standard mortgage products for the overheating of the financial markets and the credit crunch which has followed. They claim that too much money has been loaned to people who cannot afford to pay it back and allowing people to obtain a home loan without proving their income is one of the main contributing factors.

So once again self-certification mortgages are in the media spotlight. While there may be some validity to the argument that large sums of money have been loaned to people who cannot afford it, it should be remembered that self-cert products are designed for self-employed individuals who do have regular incomes by do not receive pay slips and cannot prove their earnings in a traditional way. There will always be a legitimate target market for self-certification mortgages and, if they are to hold some of the blame for the credit crunch, the rules applying to this type of home loan may need altering. The product should not be forced disappear completely.

Self employment is seen as a risky business when it comes to getting a loan. Self employed borrowers are going to face some difficulties if they are not prepared when they try to get a loan. A self cert loan requires some special documentation in order to prove to the lender the income of the borrower.

Self employed borrowers are seen as high risk. It is because they are not backed by a large companys payroll. The income of a self employed person is not steady and reliable like it would be if they were an employee of a company. The income is not guaranteed, either. Banks see this as risky because there is no guarantee that the borrower will have the money to pay them back.

Another problem with the self cert borrower is verifying the income. If the self employed person does not own their own business, such as the case with an independent contractor then it can be hard to prove income. They will not likely have a paycheck as proof or have a special business account where the income earned can be easily tracked.

Typically for self cert loans a borrower can expect to have to prove their income in a verifiable manner. This is so the bank can have proof of their income and can see just how much the borrower earns.

Additionally, it helps to avoid fraudulent claims about income. The most requested proof is tax returns. Many banks prefer to have two or more tax returns. If the person has other proof they should provide this as well.

The best bet for a self cert loan is a secured loan. With secured loans the borrower has to put up collateral for the loan. If the borrower is a home owner then a home equity loan will be the best bet.

Lenders like secured loans because they are guaranteed to get some of their money paid in any event because of the collateral. However, a self employed person using their home as equity should be very sure they can afford the loan because their home is at risk if they can not.

Getting a self cert loan will be more work than a typical loan. Lenders are going to be cautious and treat this as a risky loan, even if the borrower has exceptional credit. A self employed borrower can expect to have to show more documentation of their income.

They can also expect higher interest rates. Lenders are probably going to tack of fees and treat this as they would a loan for a borrower with bad credit. If the self employed person has rock solid proof of income, such as three or more years of tax returns, they may see a benefit because the bank may be less strict on them with lower fee and rates.

It all comes down to proving income with a self cert loan. The better a borrower can prove their income, the better their loan process will go.

Article Source : Pg. 84

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Both Michael Sterios & James Copper are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Michael Sterios has sinced written about articles on various topics from Internet Marketing, Adverse Credit and Home Improvement. If you need advice on visit. Michael Sterios's top article generates over 165000 views. to your Favourites.

James Copper has sinced written about articles on various topics from Finances, Mortgage and Mortgage. James Copper works as a Self Certification Loan Broker for Any Loans who source and. James Copper's top article generates over 1220000 views. to your Favourites.