Are you contemplating a career change, or have you recently stepped into a new job role?
If so, you might have some concerns about how this change could affect your prospects of securing a mortgage. We understand these worries, and today, we’re diving into the realm of “new job mortgages.”
New job mortgages
A new job mortgage refers to the process of obtaining a mortgage when, at some point during your homebuying or remortgaging journey or shortly after, you’re transitioning to a new job. In these scenarios, you need a specialized mortgage tailored to your circumstances.
When you apply for a mortgage, you’re obligated to make the lender aware of any future changes to your financial situation.. You cannot therefore rely on payslips issued in the months before you apply if it’s your intention to resign from that job, or you’ve already handed in your notice.
Transparency is key here. Concealing such information could lead to serious consequences.
The good news is that it’s entirely possible to secure a mortgage when you’ve just started a new job, and, in some cases, even up to 3 months before you’ve officially commenced your new role, relying on your employment contract.
Remember that when you’re changing jobs, it’s your income from the new job that’s considered for the mortgage, not your previous one. An exception might apply if you’re taking on a new job while retaining your current one. We’ll delve into this scenario as well.
How soon can I get a mortgage in a new job?
Determining your chances of getting a new job mortgage largely depends on the time you’ve spent in your new job. This is a crucial factor that sets different lenders apart, affecting how soon they’ll consider your application. If you’ve spent less time in your job, the pool of available lenders may shrink.
The number of available lenders becomes critical when your application has other complexities, like poor credit or unconventional property types, e.g., non-standard construction. In such cases, a smaller pool means stricter criteria for your new job.
Let’s break down the application difficulty into three scenarios:
- If you’ve been in your job for six months or more, you’re in a good position, regardless of other factors. Many lenders accept your application based on this solid work history.
- If you’ve been in your new job for six months or less at the time of application, you can still find a lender, but it might be slightly more challenging if other complexities are present. Some lenders might require a similar job history over the preceding 12 months, even if you’ve been in the current job for a shorter time.
- In the scenario where you haven’t started your new job yet, some high street lenders may consider your application if you have a job offer and signed contract with employment starting within three months. A recent history in a related industry increases your chances.
This flexibility is particularly useful for first-time job seekers, like recent university graduates. In straightforward cases, you can secure a new job mortgage without even having started the job. Technically, you can get a mortgage with zero months of employment.
Remember, honesty with the lender is crucial. While there’s room for flexibility, it’s important to align your application with the specifics of your situation.
What types of income are considered for a new job mortgage?
When you’re seeking a mortgage with a new job, it’s essential to understand which types of income will be considered.
Guaranteed Income: Only contractual income matters in this context. This includes your basic income, which is your salary as stated in your employment contract. Additionally, shift allowances, providing extra pay for shift work, are included. Benefits like car allowances and other contractual perks are also factored in. As long as these items are specified in your employment contract and appear on your payslips, they can contribute to your mortgage eligibility.
Non-Guaranteed Income: However, certain types of income aren’t typically considered, especially when you’ve been with your employer for three months or less. Overtime falls into this category. Lenders prefer to see a consistent overtime pattern over at least three months. Commission and bonuses, particularly annual bonuses, are also in this category. To use income beyond your basic or contractual allowances, such as commission-based earnings, you might need to wait until you’ve been in the job longer to maximize your loan amount.
How does credit score impact your eligibility for a new job mortgage?
Your credit score doesn’t directly hinder getting a new job mortgage when you’ve just started a new job. However, your credit score and your overall credit history significantly impact the number of lenders available to you.
Impact on Lender Options: If your credit score is low, you might be limited to just a few lenders, especially those specializing in higher-risk cases. Unfortunately, some of these lenders might require a longer employment history in your new job, typically between 6 to 12 months.
Credit Score and Lender Choices: The lower your credit score, the fewer lender options you have. This limited pool of lenders also reduces the likelihood that they’ll accept your case, especially if you’re in a new job for a short time. In a nutshell, your credit score directly affects the range of lenders willing to work with you, which becomes more restricted with a lower score and a shorter job tenure.
What documents do you need to apply for a mortgage with a new job?
When applying for a new job mortgage, specific documents are typically required, such as payslips, bank statements, and identification. Sometimes, additional evidence may be necessary.
Mortgage Application with a New Job: If you’re applying for a mortgage with a new job, you’ll always need payslips. If you’re currently employed, your lender may request payslips from your current job. If you’re in a new job, you’ll need payslips from both your new and previous positions.
Using a Job Offer: If you’re fortunate enough to apply with a lender before starting your new job and don’t have payslips yet, you can use your signed employment contract. Ensure that it includes your salary, and it’s the final version, ideally on company letterhead.
Contacting Your New Employer: Be prepared for the lender to contact your new employer. It’s a good idea to have contact details for someone in the HR department of your new company in case you need to assist in your mortgage application.
Bank Statements and Accuracy: Standard requirements like bank statements are still needed. Make sure all the information on your payslips matches: your name, address, and salary should align with what’s in your employment contract. Confirm that your net pay on the payslip matches the actual amount deposited into your bank account.
What rate will I get?
The rate you’ll get for your new job mortgage will depend, primarily, on your loan to value (LTV) – that’s the potion of your lending against the value of the property you’re buying as a percentage.
The higher the LTV, the higher the rate you’ll pay. You’ll only get the best rate if you can pick from all lenders – so anything within your application that is likely to impact lender choice is likely to lead to you paying a higher rate of interest.
Aside from those variables, it’s likely that having a new job will not prevent you from getting a competitive rate – similar to what you’d achieve if you had been in employment for months or years.
Does a probationary period effect my chances of getting a new job mortgage?
Most lenders are open to considering mortgage applications from individuals on probation in a new job. However, it’s crucial to double-check the specific criteria set by the lender before you submit your application.
Prior Experience Helps: If you have prior experience in a similar role with a previous employer, this works in your favor. Lenders are more likely to approve your application if you have a strong track record in a comparable position. This prior experience can boost your chances of mortgage approval during your probation period.
How about switching to self-employed?
If you’ve transitioned from being employed to self-employed and you’re just starting a new job as a self-employed individual or within a limited company, the rules change significantly. In this scenario, you’ll typically need to provide at least one full year’s worth of trading accounts. This is a different process altogether and quite complex. We won’t delve into it in this article, but we may cover self-employed mortgages in a future article.
What if my new job is on a fixed term contract?
We’ve mainly discussed permanent full-time or part-time jobs so far. But what if your new employment is on a fixed-term contract, which is becoming quite common? If your employer offers you a contract for one, two, or more years, you can still potentially secure a mortgage when you’ve just started this job.
Contract Renewal History: However, there’s a catch. Since it’s a fixed-term contract that may expire in 12 months, most lenders will want to see a history of these contracts being renewed, ideally over the past 12 months. If you can show that these contracts have been consistently extended, it might still work in your favor.
Longer Contracts: Alternatively, if your contract spans longer than 12 months, you may have an easier time getting a mortgage. The duration of your fixed-term contract will significantly influence your mortgage prospects.
Getting a mortgage when you’re starting a second job
If your new job is a second job, lenders typically want to see evidence that you can effectively manage both jobs simultaneously without any issues. Ideally, this means having a track record of at least six months with both jobs, showing that you can balance your time and responsibilities.
Balancing Two Jobs: The key is to demonstrate that you’re not overloading yourself. You should be capable of handling both jobs without negatively impacting your performance in either. This history of successfully managing two jobs will make your case more appealing to lenders when applying for a mortgage.
Should I wait until after completion until I apply for my new job?
I strongly believe that your mortgage eligibility shouldn’t dictate your life decisions. In other words, your lifestyle should guide your choices, not your mortgage requirements. However, if you choose to wait until after your mortgage is approved to make significant life decisions, it’s often because you plan to rely on the income from your current job, which can simplify your financial situation. It’s essential, though, not to make these decisions before your mortgage application, as you’ll need to inform the lender of any changes you’ve made, or are likely to make before or planned after completion day.
Our 4 top tips for new job mortgage success
Here are some tips for improving your chances of success when applying for a mortgage with a new job:
- Consider Your Job Duration: Determine how long you’ll be in the new job at the time of your application. This is crucial for finding suitable lenders.
- Prepare Your Documents: Gather essential documents before applying, including your contract of employment, payslips, and bank statements. Ensure everything is in order.
- Consult a Lender or Broker: Speak to a lender or mortgage broker before submitting your application to ensure your circumstances align with the lender’s criteria. This step can prevent unnecessary rejections and potential damage to your credit score.
- Timing Matters: Waiting for some time after starting your new job can make your mortgage application smoother, as discussed in this episode.
Remember to be honest with your lender, as transparency is key to a successful mortgage application. If you have any questions or need more tips, you can find additional information on my Instagram account, @exleyfinancialplanning.