Self-certification mortgages used to let borrowers state their income without the lender independently verifying it. That is not how regulated UK mortgage lending works now.
The FCA's current responsible-lending rules require evidence of income and explicitly state that a firm must not accept self-certification of income by the customer.
Quick Answer (Read This First)
No mainstream regulated UK lender can simply take your word for your income on a self-cert mortgage.
The Mortgage Market Review rules took effect on 26 April 2014. The FCA said at the time that the new regime would prevent a return to self-certification mortgages and require lenders to check borrower income.
Today, self-employed people can still get ordinary mortgages. The difference is that income has to be evidenced in a way the lender accepts.
What Was a Self-Cert Mortgage?
A self-cert mortgage allowed a borrower to declare what they earned without providing the level of independent documentary evidence expected today.
They were commonly associated with:
- self-employed borrowers;
- people with irregular income;
- business owners;
- commission or bonus-heavy income; and
- applicants whose accounts did not neatly reflect their current earnings.
The attraction was flexibility. The weakness was obvious: if income was not properly verified, affordability decisions could be built on figures that were optimistic, stale or false.
What Changed in 2014?
The FCA's Mortgage Market Review introduced a new responsible-lending regime on 26 April 2014.
The current rule in MCOB 11.6.8R requires a lender taking income into account to obtain adequate evidence supporting that income. It also says the firm must not accept self-certification of income, and the source of the evidence must be independent of the customer.
That is the key rule.
The FCA does not prescribe one identical document pack for everybody. Its guidance recognises that suitable evidence varies according to whether the applicant is employed, self-employed, a contractor, retired or receiving non-guaranteed income.
Does That Mean Self-Employed People Cannot Get Mortgages?
No.
Self-employed applicants use ordinary mortgage products. What changes is how the lender verifies and interprets the income.
Depending on the business structure and lender, evidence can include:
- SA302 tax calculations;
- Tax Year Overviews;
- finalised accounts;
- an accountant's certificate;
- business bank statements;
- personal bank statements;
- contracts;
- company accounts; and
- evidence of salary, dividends or business profit.
Read our full guide to what lenders want from self-employed mortgage applicants.
"No Payslips" Does Not Mean "No Proof of Income"
This distinction causes a lot of confusion.
A lender advertising that it can work without conventional payslips is not necessarily offering self-certification. It may simply use different independent evidence.
For example:
- a contractor may be assessed from a current contract and track record;
- a company director may be assessed from salary and dividends;
- another lender may consider a director's share of company profit;
- a sole trader may be assessed from tax calculations and accounts.
Those are all forms of evidenced underwriting.
What About One Year's Accounts?
A mortgage based on one year's trading history is not a self-cert mortgage either.
Some lenders will consider newer businesses or applicants with one year's accounts where the rest of the evidence supports the case. Others require longer.
The important distinction is not how many years are supplied. It is whether the lender has adequate independent evidence for the income it is using and its affordability assessment.
What Replaced Self-Certification?
Nothing replaced it with one new product.
Instead, lenders developed more detailed ways of assessing non-standard income within the same responsible-lending framework.
Sole traders and partnerships
A lender may use taxable profit figures over one or more tax years, often looking at whether profits are stable, rising or falling.
Limited company directors
Policies vary. A lender may use salary plus dividends, or in some cases salary plus a share of company profit.
Contractors
Some lenders can annualise a day rate or contract rate when their criteria are met.
Variable or commission income
A lender can average or haircut irregular income depending on its policy and evidence.
The result is a market with different underwriting approaches, not a return to declaring any income figure you choose.
What About "Stated Income" Mortgages Advertised Online?
Treat the wording carefully.
A UK regulated residential mortgage still sits within FCA responsible-lending rules. A website using phrases such as "self cert", "stated income" or "no income verification" may be:
- describing a product outside the normal regulated residential-mortgage market;
- targeting business or specialist lending;
- using outdated terminology;
- referring to another country; or
- marketing aggressively.
Do not assume that a product advertised under an old label gives you a legal route around income verification.
IMPORTANT
Never inflate income to make an affordability calculator work. The lender can verify the information, and inaccurate application data can create far more serious problems than a simple decline.
Why Your Taxable Income Can Be Lower Than the Money You Feel You Earn
Business owners often look at turnover, money passing through the business or cash available in the company and think that is "income".
A lender may be using a very different number.
For example, it can distinguish between:
- turnover;
- gross profit;
- net profit;
- salary;
- dividends;
- retained profit; and
- drawings.
This is why two lenders can reach different maximum-loan figures from the same business.
If a lender declines on the resulting figure, our guide on mortgage affordability declines explains what to investigate before trying again.
Can an Accountant Just Certify a Higher Figure?
An accountant's certificate is evidence, not a mechanism for inventing income.
Where a lender accepts an accountant's certificate, the accountant is confirming financial information within the lender's requested format. The lender can still cross-check tax, accounts, bank statements and other evidence.
The FCA rule is about obtaining adequate independent evidence, not collecting one particular piece of paper.
Frequently Asked Questions
Browse all our mortgage guides.
Sources and Further Reading
- FCA Handbook — MCOB 11.6 responsible lending
- FCA — New mortgage rules come into force, 26 April 2014
- FCA — Responsible Lending Review
- MoneyHelper — How to apply for a mortgage
Related: Self-Employed Mortgages | How Mortgage Underwriting Works | Affordability vs Credit Score.
