Reply to: Perm to Contractor - handing in notice & mortgage renewal

[JustKeepSwimming]

HI JustKeepSwimming my new mortgage will start with me being a permie, and then I plan to hand my notice in the next day. so I would then work out my notice period under the new mortgage rates, and then shift to contract the month after that

Thanks again for investing time in the topic

Well as you know you will be doing it then you are obliged to tell them and arguably it is fraud not to, as the reason you are hesitate to do so is because you fear it might jeopardise the mortgage. You are effectively misrepresenting your position by withholding information they have asked for in order to benefit yourself.

What you are meant to do and what you choose to do and what others do rarely align.

[Lance]

HI JustKeepSwimming my new mortgage will start with me being a permie, and then I plan to hand my notice in the next day. so I would then work out my notice period under the new mortgage rates, and then shift to contract the month after that

Thanks again for investing time in the topic

you'll be fine with that. Just keep the payments going.
You got the option for a 6 month payment holiday? Always worthwhile having.

[crogers]

HI JustKeepSwimming my new mortgage will start with me being a permie, and then I plan to hand my notice in the next day. so I would then work out my notice period under the new mortgage rates, and then shift to contract the month after that

Thanks again for investing time in the topic

[Lance]

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

you are supposed to tell them if you change jobs, but I wouldn't (and haven't and have an excellent credit rating). As long as I can continue making payments I wouldn't have any communication with them.

It's only relevant when you apply for a new deal. And guess what? They've never asked me if I have the same job as I had previously. They want me to prove my ability to pay every time.

[northernladuk]

I read it as the mortgage renewal has been approved on a perm basis but will only start after OP has moved to a contractor. If the renewal was already running prior to changing (technically knowing there will be a change) then I think it's fine to not tell them, I certainly think it wouldn't occur to most people to tell their lender they changed jobs.

I'd probably agree if it was me but if we are advising someone else then I'd stick to the technicalities. You said yourself you've got to advise them of a material change. Changing jobs isn't material, changing careers could be. Affects their whole income model. I still think checking with a broker and if they are unsure then telling them might be the best bet..

But up to the OP's attitude. Most likely get away it though yes.

[JustKeepSwimming]

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.

I read it as the mortgage renewal has been approved on a perm basis but will only start after OP has moved to a contractor. If the renewal was already running prior to changing (technically knowing there will be a change) then I think it's fine to not tell them, I certainly think it wouldn't occur to most people to tell their lender they changed jobs.

[JustKeepSwimming]

IMO as long as you make all of the scheduled repayments on time as per the agreed mortgage they won't know (i.e. care). I didn't tell my mortgage provider I'd gone from perm to contracting until the mortgage was up for renewal - I would suspect that's the case for a decent proportion of contractors - but a can of worms could be opened if you start missing payments...

Yeah, it's one of those things where you should tell them but if you don't chances of getting into trouble is very low and if you do get caught feigning ignorance tends to fly.

[JustKeepSwimming]

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 understand such a lax approach as they can go back to perm either. That's not a risk asseessment, that's a flippant assumption.

But 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.

The reality is, IMO, as much as some like to pretend they are Alan Sugar what underwriters see is just a normal 'worker' using a different engagement model. A shop owner earning £120k can't suddenly get a perm job paying £80k if things go tits up. A Contractor can.

Contractor focused mortgage brokers value is they know individual lenders attitudes and rules, and importantly they tend to have a direct line to underwriters who best understand contracting model and can help interpret the lenders queries and the contractors answers. For most lenders it is manual compared to more automated standard applications. but it isn't different products.

Even two different permies can be required to go through different checks. A newly qualified doctor will go through far less checks than a shop worker because the risks are different. A doctor, broadly, has a secured job for life with pretty regimented pay increases through their career. That doesn't mean there are different products for doctors.

[pr1]

IMO as long as you make all of the scheduled repayments on time as per the agreed mortgage they won't know (i.e. care). I didn't tell my mortgage provider I'd gone from perm to contracting until the mortgage was up for renewal - I would suspect that's the case for a decent proportion of contractors - but a can of worms could be opened if you start missing payments...

[crogers]

Thank you all,this has been very helpful.

[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.

[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.

[JustKeepSwimming]

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

[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.

[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