Home loans for lone rangers

Mortgages for self-employed workers are becoming more competitive.

Working patterns are changing as an increasing number of us become self-employed, take on contract work or have more than one job. A job for life is no longer an option.

Working patterns are changing as an increasing number of us become self-employed, take on contract work or have more than one job. A job for life is no longer an option.

As a result, many people can experience difficulty getting a mortgage from a high-street lender. Self-certification mortgages are aimed at those who find it difficult to provide proof of income, whether they are self-employed or on a low income boosted by commission and bonuses. Such mortgages tend to require less documentation, such as accounts, so that those who have run their own business for just a year can get a loan. Normally three years of accounts must be presented when applying for a mortgage.

The main providers of self-cert loans are specialist lenders such as Mortgage Express, Household Mortgage Company (HMC), Verso, Kensington Mortgage Company (KMC) and The Mortgage Business (TMB). Traditionally self-cert mortgages provided a loan of only 75 per cent of the property's value and tended to be less competitive than mainstream products.

But as the market grows, the number of providers is increasing and deals are improving. According to the Office of National Statistics, 13 per cent of the UK workforce is self-employed; this figure is expected to increase to 25 per cent in five years.

Bristol & West recently made its self-cert mortgage more competitive, lending you 85 per cent of the value of your new home, instead of the previous 75 per cent limit.

"There is no justification for penalising the majority of the self-employed with increased premiums," says Denzil Morgan, head of specialised lending at Bristol & West. "Many of them have a proven track record and will be able to make their mortgage payments despite the fact they may not have a definitive income."

It is possible to borrow up to 80 per cent of the value of the property from Bank of Scotland and First Active. Abbey National, Legal & General and Halifax offer loans up to 75 per cent of the property's value. If you need to borrow more than this, you will have to approach a specialist lender.

Different lenders require varying levels of documentation for self-cert mortgages. Halifax demands three years' worth of accounts or two years plus an accountant's projection for the third year. You also have to be an existing Halifax mortgage customer. Abbey National and Bank of Scotland require two years of accounts.

If you already have a mortgage when your working pattern changes, it is worth approaching your lender first to see what it can offer you before you start shopping around.

"Most people will have a financial relationship with a lender and could probably get a mortgage," says John Massey, head of mortgages at HSBC. "HSBC will, on occasion, go outside the set criteria and consider individual circumstances."

Simon Knight, chief executive of the Independent Mortgage Collection (IMC), warns against giving in to temptation and inflating your salary. "This could affect borrowers' ability to repay," says Mr Knight. "This could then adversely affect the prospect of getting another loan in the future."

Specialist lenders' attitude to risk tends to be different from that of many high-street providers. "I think we approach lending to the self-employed in a more realistic way," says Michael White, director of lending at KMC, specialist in non-conformist mortgages. "High risk isn't necessarily bad risk, which is why in some cases we would be prepared to lend up to 90 per cent of the value."

If you can supply only a limited financial history, you are considered a higher risk, which is why rates are higher than with mainstream mortgages. (KMC charges around 2 per cent more than the average mortgage rate.) It is worth shopping around for the most competitive deals and also using a mortgage broker.

"Some self-cert products are reasonably comparable with normal rates," says Siobhan Hotten, marketing manager at mortgage broker John Charcol. "People who need a self-cert loan are best looking at short-term fixed or discounted rates as they are likely to be eligible for a mainstream loan by the time the term comes to an end."

* Contacts: Abbey National: 0800 555100; Bank of Scotland: 0645 812812; Bristol & West: 0845 300 8000; Halifax: 0800 203049; HMC: 01494 459100; HSBC: 0800 494999; IMC: 0800 731 0137; John Charcol: 0800 718191; KMC: 0808 100 4200; L&G: 08700 100338; TMB: 0845 725 3253