Perm to Contractor - handing in notice & mortgage renewal

[crogers]

Hello,

This is my first post. I have looked back at previous posts and cannot find a similar question (probably because I am struggling to frame my question).

I am planning to move from permanent employment (14 years, 2 companies) into contracting and setting up a limited company.

My mortgage renewal (new rates for a 3-year mortgage) go into effect start of August.
If I were to hand in my notice the day after, am I under obligation to inform the bank or is my mortgage at risk?

Who would you advise that I speak with?

Thank you in advance for any insight that would help me navigate this leap.

CR

[northernladuk]

They will ask your employment situation and being a contractor means you'll have a different set of products available. They'll ask to see your SA302 to prove income but are likely to pick up on the fact your income situation will now change as you are an officer of a LTD company rather than employee. This will affect the risk around ability to pay going forward even though your SA302 covers your previous income.

It's likely you are going to have to pick a contractor speciific product which gets complicated as banks only tend to do one or two and each back has different criteria. Some want X months left on your contract, others don't like breaks.

It is possible to find them yourself but you are going to have a to do a lot of leg work. Best bet is to use a contractor specific broker that understands what we do and knows all the products available. Halifax used to have the best one but it's been a few years since I was involved. I'd suggest you speak to Freelancer Financials, fill in their fact finder and let them check with product will suit your situation.

[JustKeepSwimming]

Hello,

This is my first post. I have looked back at previous posts and cannot find a similar question (probably because I am struggling to frame my question).

I am planning to move from permanent employment (14 years, 2 companies) into contracting and setting up a limited company.

My mortgage renewal (new rates for a 3-year mortgage) go into effect start of August.
If I were to hand in my notice the day after, am I under obligation to inform the bank or is my mortgage at risk?

Who would you advise that I speak with?

Thank you in advance for any insight that would help me navigate this leap.

CR

You're not allowed to lie if that's what you're asking.

Lenders tend to be ok with new contractors if the contracting work is the same as their previous permie work. Your best bet is to ring a mortgage broker who specialises in contractors.

[northernladuk]

You're not allowed to lie if that's what you're asking.

Lenders tend to be ok with new contractors if the contracting work is the same as their previous permie work. Your best bet is to ring a mortgage broker who specialises in contractors.

No they won't and no it's not. Previous job was employed as an IT bod, new job is director of a LTD so their risk profiles won't see it as the same work at all. It's going to affect the income of that person significantly so needs to be handled differently, hence the requirement for a contractor specific product.

[JustKeepSwimming]

No they won't and no it's not. Previous job was employed as an IT bod, new job is director of a LTD so their risk profiles won't see it as the same work at all. It's going to affect the income of that person significantly so needs to be handled differently, hence the requirement for a contractor specific product.

I disagree. Yes the income will be different and will be taken into account. Underwriters see someone with 14 years of solid perm work, doing contracting in the same field. They understand if the contracting fails they can go back to perm relatively easily. There is no such thing as a contractor specific mortgage, there is only lenders different attitudes to contractors.

[crogers]

Thank you for your insight so far.

To clarify, I have an agreed mortgage deal that kicks in August 1st, which is obviously based on my current employment status.

In my scenario, I am looking to understand what happens August 2nd if I hand in my notice, and ideally start my first contract beginning of September.

Do I need to inform the bank of my change in status before or after I plan to do this? Or will the only time that I need to speak to my bank next be when my mortgage is up for renewal (new rates)?

Sounds like seeking advice from a mortgage broker is the way to go, but any general insight to my scenario very much appreciated.

CR

[wattaj]

In my scenario, I am looking to understand what happens August 2nd if I hand in my notice, and ideally start my first contract beginning of September.

What does your mortgage contract say about being made redundant / significant lifestyle changes?

This is close to the same thing and I would not want to bet my house on them just shrugging and letting you get on with it.

Speak to a broker.

[JustKeepSwimming]

You have to tell the lender if there has been a material change to the information on which they based their approval.

[northernladuk]

I disagree. Yes the income will be different and will be taken into account. Underwriters see someone with 14 years of solid perm work, doing contracting in the same field. They understand if the contracting fails they can go back to perm relatively easily. There is no such thing as a contractor specific mortgage, there is only lenders different attitudes to contractors.

Well we will have to agree to disagree on both points but would be great if someone could confirm but...

What the underwriter sees in the past is no gaurantee that person is safe to lend to. If affects affordability but no the repayment risk. A director takes low pay and dividends, they may have other people in the company, the market for suppliers is totally different to perm workers, by the nature of the work there are frequent gaps income, 60% of startups fail and so on. The whole risk model is completely different and that's what they assess. Ah he's an IT bod he'll be fine is not a risk assessment. I also don't think they have such a lax approach as 'they can go back to perm' either. That's not a risk asseessment, that's a flippant assumption.

Lenders have different products for contractors that ask for different stuff. Contractor mortgages require a contract to be submitted to assess how long is left on it and they will also dig back to see how many gaps you've had and other questions. The affordability is based on contract rate, not income and they can ask about reserves and company ownerhip/shareholding. The rates are slightly different (generally higher) based on this information. A perm wouldn't have these documents so wouldn't be eligible for a contractor specific product. A standard product will require proof of income, won't take dividends in to account and other things that means a contractor won't have access to it.
So if you are being pedantic a perm can apply for a contractor product and vice versa but neither will meet the critera so kind of makes it as contractor specific as it can be.

[northernladuk]

Thank you for your insight so far.

To clarify, I have an agreed mortgage deal that kicks in August 1st, which is obviously based on my current employment status.

In my scenario, I am looking to understand what happens August 2nd if I hand in my notice, and ideally start my first contract beginning of September.

Do I need to inform the bank of my change in status before or after I plan to do this? Or will the only time that I need to speak to my bank next be when my mortgage is up for renewal (new rates)?

Sounds like seeking advice from a mortgage broker is the way to go, but any general insight to my scenario very much appreciated.

CR

Your situation is complex and has some very specific detail and complex timelines so general insight isn't going to help you. You need to check with a proper broker as the minute details and timing is key.

JustKeepSwimming has nailed it regarding telling them of material change. So close to the beginning of the mortgage could change the risk profile of the entire mortgage. I really don't think you'll lose the house or anything stupid but you could be asked to move on to a highly unfavourable product when you could have searched for a better one if you'd done it properly.

Deffo one for the broker and one that understands contractors.