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The term non-status lender is used by the mortgage and property loan industry where the applicant does not necessarily need to show their income or credit score in order to be accepted for a loan. Whilst non-status lenders do remain regulated, they have different terms and requirements than those status lenders that are governed by the FCA – who will always need to ask for proof of income and credit history.
Since income and credit scoring is not an underwriting factor, the lenders will base their decision on the value of the property and the customer’s plans for the loan. With mortgages and property loans, the finance is pretty much always secured on the property so if it has a good value in a strong market, the lender can feel confident to lend knowing that they will likely make a return.
What is a non status mortgage?
A non status mortgage is a mortgage offered by non-status lenders. As previously mentioned, non-status lenders usually will not need to see the borrower’s credit score in order to be accepted, and will instead base their decision on other aspects of the application, such as the property’s value.
A non status mortgage, otherwise known as a self status or a self-cert mortgage, are usually used by those who are self-employed and find it difficult to convince the lender they earn a stable and regular enough wage to keep up with repayments.
As a non status lender bases a lot of their decision on the actual value of the property, a non status mortgage can therefore be used by those that lack a good credit score or valid proof of stable income.
The maximum LTV is usually around 70-75%, the mortgage secured on the property, which will be used as collateral if the borrower fails to keep up with repayments.
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Why Would A Lender Want To Be Non-Status?
For the lender’s point of view, not having to carry out major affordability or credit checks can save a lot of time and money. No need for huge underwriting teams or the cost of tools and credit bureaus in order to carry out checks. If the lender knows that they can assess the value of a property, an individual’s plans and potential growth effectively, they can make a healthy profitable on a loan.
Since the applicant is not showing their income or credit score, they will therefore receive a lower loan to value (LTV) with a maximum of 75% and the interest rates will be higher. So from the lenders point of view, they can potentially lend lower amounts and charge higher rates than regulated competitors.
Why Should I Apply For a Non Status Mortgage?
Applying with non status lenders is ideal for those individuals that struggle to show their income, maybe because they are self-employed or contractors. In these cases, showing pay-slips and estimating your annual income can be tricky.
But that doesn’t mean that you aren’t a good person to lend to and won’t pay your loan on time. To save hassle on trying to prove your income, you can just apply with a non regulated lender and avoid the conversations altogether.
Plus, with less checks involved, they can probably complete the application sooner and transfer the funds a lot quicker.
A non status mortgage is therefore great for those with an infrequent income, or who cannot provide sufficient evidence to the more standard mortgage provider that their income is stable enough to afford repayments.
Things to consider when taking out a non status mortgage
There are a few things that you need to consider before taking out a non status mortgage, helping to ensure you are properly prepared for this financial commitment.
Firstly, these types of mortgages are not available in the UK, as the FCA regulations mean lenders are obliged to conduct rigorous affordability checks, and cannot accept self-certification of income.
However, it is still possible to get a non status mortgage from a lender based mainland Europe, as rules in other areas of the EU can be less strict than those of the UK.
Whilst it may still be possible to get a non status mortgage, there are a few things applicants must take into account, including the increased risk of losing their home.
As the lender would not be regulated by the FCA, borrowers could face an increased risk of losing their home when failing to make repayments on the mortgage. It’s therefore vital to ensure you can keep up with the repayments to avoid this from happening.
Those wanting to apply for a non status mortgage should consider the following points, as highlighted by the FCA:
- “Before making any decisions, find a regulated mortgage adviser who can give you advice on mortgage products from a wide range of lenders including those regulated in the UK. Make sure your adviser is qualified and FCA regulated (check the Financial Services Register).”
- “If you are still considering using a firm based outside the UK, find out what protections you will have if things go wrong. Ask for a copy of the mortgage terms and conditions. Ask for the contact details of the firm’s regulator.”
- “Find out how the firm will deal with borrowers who fall into arrears, plus details of fees and charges.”
- “Remember you will not be protected by UK regulation if things go wrong, and you could lose your home if you cannot afford your mortgage payments.”
- Since there are no income or credit checks, the LTV is likely to be lower than standard regulated mortgages and the interest rates are likely to be higher than other regulated lenders.
- A non status lender will not lend to someone if it is their primary residence i.e you currently live there. So if you want to use a non status lender for your home, you will not be able to do this.
- Whilst the current and potential value of your land is important, other underwriting factors include having a strong business plan and good track record.