Mortgage in the UK and changing jobs

If you have signed up for a mortgage in the past, you probably remember how, during your affordability assessment, the bank required documents proving your earnings and the taxes you had previously paid. It probably also required you to provide information about your place of employment. This is for good reason - the bank analysts (underwriters) make a creditworthiness assessment based on your financial situation, which is shaped largely by your income and employment stability. Of course, creditworthiness is influenced by many other factors, such as your credit history, your Debt-to-Income ratio and the stability of your place of residence, but** the basis for determining a large number of indicators is your earnings**.

In this post, we will describe how changing jobs affects a mortgage and explain the issue of changing employment during the mortgage application itself.

Do I need to inform my lender of a job change?

Your financial situation is important to the lender as it affects the risk assessment. Informing the bank about a change of employment can be very important, but only in certain cases. If you have already been granted a mortgage, have a signed contract and do not happen to be late with instalments, banks usually do not require notifications about a change of job. Once the mortgage has been granted, they do not monitor changes in your employment on an ongoing basis. The situation is completely different when your salary decreases significantly and you may have problems paying instalments on time.

Changing jobs while applying for a mortgage in the UK

If you change jobs when applying for a mortgage, you should immediately inform your credit counselor or the bank directly. Withholding this information has very serious consequences, as theunderwriterwill not be able to correctly assess your current and future financial situation. If you lie to the bank, you have to expect that the truth practically always comes out and the consequences are serious. The most commonly used are:

• Rejection of the application - the most common solution to such a problem by a bank, is simply to reject the application. This means that the decision in principle loses its validity and the customer does not receive the mortgage;

• Termination of the credit agreement - by making a decision as a result of deception, the bank has the right to cancel the credit agreement it has entered into;

• **Reporting the customer to **CIFAS (Credit Industry Fraud Avoidance System) - in the worst case scenario, the bank can report the borrower to CIFAS, the UK’s anti-fraud organisation. Such a scenario is quite rare and involves people who have deliberately provided incorrect information;

• Litigation - theoretically, the lender can report the borrower on suspicion of committing bank fraud, which can carry up to 10 years in prison or a fine. These are extremely rare cases, but you should be aware that by misleading the bank you are breaking the law.

It is worth remembering that the decision in principle has a specific expiry date, which can be shortened, inter alia, if there is a change in the client’s financial situation. This also applies to a change in the place of employment, so that if the applicant changes job with a lower salary, the whole procedure may have to be repeated.

Will a job change result in me not getting a mortgage?

Changing jobs does not necessarily affect a bank’s decision on whether to lend to you. Your situation will be shaped by several factors:

• **The nature of the new contract **- a probationary period is treated differently from an indefinite contract. Banks prefer permanent employment, although under certain conditions they may agree to lend to someone who is uncertain about getting a permanent position;

• The nature of the new position - a drastic change in position works against you, as the underwriter may be concerned that you will leave the role after the probationary period;

• The industry you work in - banks understand that in some professions, jobs change frequently. In industries such as software development, moving to another company after less than 2 years is standard.

**If you are not changing employers, but simply being promoted, informing the bank is not so necessary **- at worst, your creditworthiness will remain the same instead of increasing due to your improved salary. However, if you move to another company and start working together with a probationary period, the bank may not agree to give you a mortgage during this time. A change in remuneration model is also troublesome - performance bonuses, overtime and sales bonuses may not count towards affordability, at least initially.

In our experience, if the change of employment is smooth and your new employer immediately offers you a contract for several years or indefinitely, the big banks will basically never make problems. Everyone understands that seeking new challenges is important for career development. However, if your career is erratic, you have a lot of interruptions in your employment or your income fluctuates dynamically, the bank may be sceptical about your mortgage application.

Usually, changing jobs is not a problem after just three months or so - having worked a quarter in one place suggests that you are more likely to stay with a particular employer for as long as you want. Remember, however, that it all depends on the overall outline of your financial situation. A professional with 20 years’ experience will be treated differently from someone who is just starting their career.

What happens if my salary is lower than before?

A pay cut resulting from the choice of a new job can lead to:

• A reduction in the amount of credit available;

• A change in the conditions under which the customer will receive the mortgage;

• Or the outright rejection of the application.

In such a situation, there are several possible scenarios. If you have a good credit score, i.e. a good credit history, a credit utilisation rate and Debt-to-Income ratio, and a high own contribution, your situation need not change at all. Of course, if you were planning to make the most of your creditworthiness, a drop in earnings will derail your plans.

If the changes in your financial situation are insignificant, the information about your job change may not affect the bank’s decision at all. This means that it will grant the mortgage on the same terms and conditions as agreed at the underwriting and agreement-in-principle stage.

How do I prepare for a job change so that my mortgage is not affected?

Changing jobs can affect your creditworthiness, so it’s worth remembering to take a few steps to protect it. If you have a job change in mind, it’s worth considering a few things to prepare accordingly. This will help you to secure your mortgage or minimise the risk of missing out on funding opportunities.

Choosing the right time to change jobs

Remember that, to avoid additional complications, it would be a good idea to change jobs before or after receiving a mortgage. As we mentioned earlier, once the application is finally approved, the bank rarely monitors the customer’s employment. This will avoid unnecessary paperwork. Remember, however, that this only applies if you are sure that your salary will not change significantly and that you will be able to pay the mortgage instalments on time.

Such an arrangement also gives you the freedom to choose a job with a probationary period. Once you receive credit, such a decision will not hamper any processes.

Check the bank’s policy towards employment transition

Before changing jobs, it’s a good idea to familiarise yourself with your bank’s rules. To do this, simply ask your mortgage adviser from Extend Finance - we will prepare you the exact guidelines required by the bank where you are applying for a mortgage. This information can also be found on the lender’s website, although it can be cumbersome to obtain.

Prepare relevant documents

If you are changing jobs, your bank may need to reassess your creditworthiness. To prepare for this, it is a good idea to gather the relevant documents, such as:

• Last 3-6 payslips - these show the stability of income;

• P60 - which is an annual summary of income and taxes;

• Letter from employer - confirming employment;

• Bank statements for the last 6 months.

And:

• Evidence of income stability in the new job (e.g. contract)

Summary

Changing jobs is a normal thing for any banking analyst, but it’s worth avoiding when it happens during a mortgage application. At that point, your situation may be complicated and your ability to obtain financing jeopardised. In any such situation, the most you can do is to consult a mortgage adviser who is very knowledgeable about each bank’s policies.