Bank managers are probably the most risk-averse individuals you are likely to meet - without proof of a regular salary and sound financial track record you may presume a frosty reception when you ask about borrowing. However, there are options available for people who don't conform to the norm.
If you are self-employed or have an erratic income, you can consider a self-certified mortgage. As the overall mortgage market has become more flexible and competitive in the past few years, the amount of lenders offering self-cert mortgages has increased. Whereas they used to be the preserve of specialist lenders, and come with pretty strict terms and conditions, you can now find self-certs from most of the major high street banks and building societies.
The set up
Normally, lenders will look for a larger deposit when you take out a self cert mortgage - 25% is usual. As far as proving your earnings, some lenders such as the banks and building societies, will look for certified accounts for the last 3 years. They may also require bank statements and carry out credit checks. However, there are some mortgages available where the lender only asks for you to verify that you can afford the repayments.
Who's it for?
This type of mortgage usually caters for self-employed people, but there are others who can benefit. People who work overseas, or who earn bonuses that do not show as part of their salary may choose to self-certify. Business owners and company directors sometimes award themselves a minimal salary, but have a larger income through dividends, for example. This can be useful when it comes to tax management, but make finding a conventional mortgage harder. If you have an erratic income, you may want a more flexible mortgage that allows you to increase or decrease your monthly payments according to your current situation.
You may find the terms less generous than with other types of mortgage, and the lender may apply Higher Lending Charges or an indemnity to protect them. The FSA recently highlighted the disturbing trend of some brokers encouraging borrowers to inflate their reported income in order to gain a larger mortgage. Remember it is a criminal offence to lie about your income, and over-estimating what you earn could mean that you find yourself with monthly repayments that you cannot afford. If you are subsequently unable to meet repayments your home could be repossessed.