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Don’t be tempted to misuse self-cert

While self-cert mortgages should have a place in the portfolios available to clients, they are fraught with danger and should be regarded as strictly niche, says Sue Read

I have always been wary about self-cert mortgages and I don’t like them. I suppose some might say that’s because I like to play it safe. I’m not a gambler by nature and don’t like taking risks.

To me, self-cert mortgages are fraught with danger. Pitfalls lie all around, waiting for unsuspecting brokers and clients. Underwriters lurk in the jungle of the criteria undergrowth waiting to pounce on inconsistencies. At every twist and turn through the application process, tripwires are set. One false move and you’re dead.

Well that’s my view anyway, but I also believe that self-cert mortgages should have a place in the portfolio of schemes available to clients.

Self-cert mortgages fulfil a specific role – the pertinent point is that this role should be niche.

Last week I recommended a self-cert mortgage for one of my own clients. She’s an intelligent lady, if financially slightly naive. She has no head for money and has built up fairly large debts, which she now needs to consolidate. The problem is her income comes from various sources and is difficult to verify. It does, however, exist. Nonetheless, under most lenders’ income multiples we need an income stretch.

Of course there will be advisers out there who’d suggest that she simply inflate her income figure to fit lenders’ criteria. I hope, and believe, that such intermediaries are a dying breed – the dinosaurs of our industry, heading for a well-deserved early extinction. I will never condone such action but I understand how tempting it might be. After all, it seems so easy.

What frightened me most about this client’s story is that she had also been speaking to an adviser who said he could get her the money she needed but only if she agreed to take out a single premium payment protection policy. The cost? A cool 6,000 added to her loan. She wanted to borrow an additional, not insignificant, 20,000. The single premium adds a whopping 30% to the amount she needs to borrow. This is obscene.

I realise that for some clients this may be described as their only option, but I cannot see how this level of additional debt can be justified. The so-called advisers who prey on this type of client are either nasty or completely desperate to earn commissions. I’ll be charitable and lean toward the latter as the explanation of what drives them.

Back to my client. I was lucky enough to find a lender able to do the necessary without excessive and unwarranted extra cost or poetic licence. A low LTV and a surprisingly strong credit score helped her situation. A good job done from everyone’s perspective.

Please don’t think I’m being holier than thou. I’m not perfect, but I’m not a chancer. This may be boring to some but at least I have a clear conscience.

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