Credit Crunch and Self-Certification Mortgages

By: michael sterios

With the credit crunch forcing lenders to evaluate their loan books and reassess the types of products they offer it would appear sensible to anticipate the demise of the self-certification mortgage. However the market for self-certs remains buoyant as lenders have not tightened the reigns as much as expected and as much as they have for other products.

Mortgage lenders have reported record losses on their loan books due to high default rates on non-standard products. Billions of pounds of home loans have been written down as lenders recalculate their real worth in the light of the credit crunch. These products typically include mortgages that have been issued to borrowers with bad credit or borrowers who may not be able to prove their incomes.

Such borrowers represent a high risk to mortgage lenders. This is normally reflected by higher interest rates and hefty fees being charged to hedge against the increased risk. In the wake of the rise in interest rates over the past few years many borrowers of non-standard mortgage products have been forced into a situation in which their monthly repayment amounts on their various credit products are unaffordable.

The overall affect has been an increase in loan defaults which normally prompts borrowers to tighten their lending criteria. While mortgage products that were targeted towards borrowers with bad credit have been rapidly disappearing, self-certification mortgages remain widely available and relatively unchanged.

Borrowers who apply for self-certification mortgages must declare their income to the lender but are not required to provide evidence of earnings. This type of mortgage product is particularly useful to self-employed workers and employees with uneven earnings levels, such as those who receive commission payments instead of a salary.

Mortgage lenders were expected to pull self-certification mortgages from the market as the credit crunch began to take effect, however this has not been the case. One explanation for this surprise move is that this type of home loan product may not be as risky to lenders as first thought.

Lenders will only remove products from their loan books that represent an unacceptable risk or that are contributing to their losses. The wide availability of self-certs suggests that lenders have assessed that they are still a profitable product and should continue to be offered to borrowers. This is good news for self-certification mortgages and provides an indication that they should remain largely unaffected by the credit crunch.

Despite the fact they are still available there are effectively fewer products to choose from in the current market. Those products that are available are extremely popular and can disappear quickly when they reach the top of the best buy table on mortgage comparison websites. These tables display home loans in order of perceived value to borrowers. The products displayed at the top of the table are supposedly the best value products currently on offer and are therefore popular with applicants. If you want to secure a best buy home loan you must therefore act fast in contacting the broker or lender and submitting an application.

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