The mortgage landscape is evolving and changes are being made throughout the industry, from MMR to the impending EU Credit Directive in 2016. Most recently, the Financial Conduct Authority (FCA), the Council of Mortgage Lenders (CML) and Her Majesty’s Revenue and Customs (HMRC) reviewed the online documentation that HMRC produces for its self-employed customers looking to apply for a mortgage.
Following a discussion last year between senior mortgage officials, it was felt that mortgage lenders shouldn’t solely depend on tax calculations (SA302s) because the information provided is just a duplicate of what self-employed customers tell HMRC about their incomes. HMRC does not verify the data and customers can simply change the data and details if they want to. Issues were flagged that relying exclusively on tax calculations is effectively self-certification of income and this was a customer conduct and governance control concern for the industry.
In order to paint an accurate picture of a self-employed customer’s income, it was recognised that the Tax Year Overview (TYOs) that HMRC asks customers to complete is also a valuable document. The TYO shows how much tax the customer has paid towards the tax due on the income reported for the tax return. Both documents play an important role in showing the holistic income of a self-employed individual.
Accountant’s certificates
Today, self-employed applicants who provide SA302s as evidence of income will also need to provide TYOs for the corresponding tax years to support their application. Some self-employed applicants use an accountant’s certificate as evidence of income, at Santander we have always accepted accountant references from qualified accountants and this will continue.
SA302s and TYO information and the necessary forms can be found online at the HMRC website, applicants will need an online account with HMRC and will then be able to print all documentation from the site.
The majority of lenders (over 75% of the market) have adopted this new approach and now ask for TYOs. To support brokers through this change, we have updated our affordability calculator and evidence requirements guide and have issued communications to brokers.
Graham Sellar is head of business development for mortgages, Santander UK
