Mortgage renewal with a reduced income

LAJ123 · 12 October 2016 at 12:19PM

I have recently purchased a property borrowing a mortgage of £160,000.00 from HSBC. It is a 2 year fixed mortgage at a rate of 1.79% for a term of 30 years. I currently have very low monthly repayments of around £500 p/m as I put down a very healthy 60% deposit when I bought the property.
I am currently employed in a full time role earning £35,000 p/a but I am considering leaving my work and freelancing again (something I have done in the past and can earn between £27,000 and £30,000 p/a though this of course varies from year to year)
My fear is that when I come to renew my mortgage in just under 2 years time will I encounter difficulties in agreeing a new mortgage with the significantly lower income? I did read somewhere that if I decide to remain with the same lender and have a history of paying my repayments on time they won't necessarily check my credit and income so this shouldn't be a problem.
Any advice warmly welcomed!

Thrugelmir · 12 October 2016 at 1:05PM

It's optional as to whether lenders perform any checks on existing borrowers switching mortgage products. Those that still do are either related to historical issues or is the nature of the market they currently target. There's no reason to think that HSBC will providing you take a non advised route, i.e. online.

I currently have very low monthly repayments of around £500 p/m as I put down a very healthy 60% deposit when I bought the property.

Maybe so. However a debt owed of £160k exposes you to a significant increase in outgoings should interest rates rise. At a normal level Bank of England base rate should be somewhere between 3.5% and 5%. Using your current rate as an example. You would be paying somewhere between 4.75% and 6.25% on your mortgage at some point in the future. Possibly even higher if lending margins start to spread. Once the effects of the BOE funding for lending scheme unwind for example. So don't get complacent.

SavingSteve · 12 October 2016 at 1:06PM

If you stick with HSBC it will be a product switch. My understanding this is without any further checks.

neo2020 · 12 October 2016 at 1:12PM

LAJ123 wrote: »

My fear is that when I come to renew my mortgage in just under 2 years time will I encounter difficulties in agreeing a new mortgage with the significantly lower income?

You will encounter difficulties - I say this as a freelancer myself. My understanding is 4.5 x income is the most you'd be able to borrow all other things being well.

You also need to understand that depending on when exactly you switch to freelancing, you will only have 1 or maximum 2 years' accounts. 2 already cuts the potential lender pool quite a bit, 1 cuts it right, right down.

In other words, you will not only struggle to get a mortgage based on your income, you will also struggle based on other criteria.

Have you considered holding on to your job until the fix deal expires, then remortgaging to a 5-10 fix and flex or some other kind of 5-10 year deal, and then switching to freelancing?

kingstreet · 12 October 2016 at 1:32PM

neo2020 wrote: »

You will encounter difficulties - I say this as a freelancer myself. My understanding is 4.5 x income is the most you'd be able to borrow all other things being well.

You also need to understand that depending on when exactly you switch to freelancing, you will only have 1 or maximum 2 years' accounts. 2 already cuts the potential lender pool quite a bit, 1 cuts it right, right down.

In other words, you will not only struggle to get a mortgage based on your income, you will also struggle based on other criteria.

Have you considered holding on to your job until the fix deal expires, then remortgaging to a 5-10 fix and flex or some other kind of 5-10 year deal, and then switching to freelancing?

This is a product transfer/customer retention product, not a remortgage...

neo2020 · 13 October 2016 at 8:28PM

kingstreet wrote: »

This is a product transfer/customer retention product, not a remortgage...

I was answering the OP which talked about remortgaging, so, as you suggest, a product switch would be the right option I think.

kingstreet · 13 October 2016 at 9:51PM

No mention of a remortgage in the opening post, neo...?

There is specific mention of customer retention products being available from existing lender when not remortgaging as no status or affordability checks may be done for them.

neo2020 · 13 October 2016 at 9:59PM

kingstreet wrote: »

No mention of a remortgage in the opening post, neo...?

There is specific mention of customer retention products being available from existing lender when not remortgaging as no status or affordability checks may be done for them.

Hrm, you're right. I stand corrected. Apologies to OP and well done you.

kingstreet · 13 October 2016 at 10:03PM

Nah, dunna worry. I'm really pedantic about use of "remortgage."

It means use of a new mortgage from a new lender to repay the old one, possibly with increased borrowing.

The actual mortgage, the security which ties the homeloan to the security property has to change from one lender to another.

Too many people now understand a remortgage to be a rate change at the end of whatever they are currently on.

It isn't.

BTW you were completely correct in your assertions as they would apply if this was about remortgaging.

neo2020 · 13 October 2016 at 10:07PM

kingstreet wrote: »

Nah, dunna worry. I'm really pedantic about use of "remortgage."

It means use of a new mortgage from a new lender to repay the old one, possibly with increased borrowing.

The actual mortgage, the security which ties the homeloan to the security property has to change from one lender to another.

Too many people now understand a remortgage to be a rate change at the end of whatever they are currently on.

It isn't.

It's a very important distinction actually. Until recently, I didn't even know product switches were possible and assumed that I would have to treat my finances the same way you treat your house while trying to sell it: in permanent "for show" mode.

LAJ123 · 18 October 2016 at 12:26PM

Thanks all I think that makes sense, so when I come to the end of my fixed term of 2 years in 2018 I should be able to get a new mortgage product ( known as a product switch) through my existing lender and the likelihood is that they will not need to conduct a new series of credit checks in order to do this as I will be an existing customer with a 2 year history of mortgage repayments paid reliably and on time?
Thanks!

Mortgage renewal with a reduced income

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