Got mortgage in principle as employee then becoming self-employed

djantler

I have got a mortgage in principle on the basis on my employment salary but have not yet had an offer accepted on a property. In the meantime however I have been offered a promotion at work to become a partner in the firm. While this is obviously means my income will hopefully increase significantly as the business is very profitable, and indeed I will be taking salary drawings from the business at a higher level than my previous salary, it does mean I will technically become self-employed.

Do I have to inform the mortgage company of this, given that my effective income is at least the same as before (so the change would have no negative impact on my ability to pay the mortgage)? I'm worried that it would be difficult to get another mortgage as a newly self-employed person, or that the rates I would have to pay would be much higher.

ruggedtoast

When you apply for the mortgage proper you will have to verify your income and probably provide an employment reference stating your hours and salary, do I don't think there is much point trying to hide it from them.

You would be best off discussing your needs with a broker.

djantler

My income was already verified as part of the mortgage in principle since the mortgage application is with my current bank (First Direct) so they've seen the previous salary being paid in every month. I'm pretty sure they had previously told me they wouldn't have to do anything more than a credit check to finalise a mortgage at this point.

I spoke to a broker previously before first arranging this mortgage in principle and couldn't find a better deal, so I think if I spoke to one now with a newly self-employed status it would probably be even worse in terms of the deals I could get.

If I already had the mortgage and my employment status changed in this way then I believe I wouldn't have to inform the bank so basically not sure if I have to do so now before it is arranged - I certainly would have done if my situation had negatively affected my ability to pay the mortgage, but since it is for the better do they still legally need to be informed?

GMS

Not disclosing information has a name ..... fraud

m_13

As GMS says, failure to disclose where there is a legal obligation is fraud. From the Law Society website:

Mortgage fraud occurs where individuals defraud a financial institution or private lender through the mortgage process.

The definition of fraud in the Fraud Act 2006 covers fraud by false representation and by failure to disclose information where there is a legal duty to disclose. False representations can be made explicitly or implicitly and may occur even where you know only that the representation might be misleading or untrue.

The value of a mortgage obtained through fraud is the proceeds of crime.

We were sent a document from our solicitor to sign before the mortgage could be drawn down. These are some of the questions we had to answer:

7. Since the mortgage application was made no matter has occurred or circumstance has arisen which the lender is likely to consider important in deciding whether to make the loan to me (e.g. notice of termination of employment, proceedings in a court of law)


8. The information provided by me to the lender at the time when the mortgage application was made was true and remains true at today’s date


9. I undertake to notify you at once in writing immediately if any information or confirmation given by me in response to paragraphs 1-9 above becomes no longer true (e.g change of circumstance, change of intention) prior to completion of the mortgage. I authorise you to disclose to the lender details of any notification given by me to you in accordance with this undertaking.


I think you'll find that it will be impossible not to declare this change in employment status without lying.

opinions4u

djantler wrote: »

My income was already verified as part of the mortgage in principle since the mortgage application is with my current bank (First Direct) so they've seen the previous salary being paid in every month.

I would hope you're intelligent enough to realise that an income you no longer have is not much use. But tell us more about the nature of the partnership compared to the size of the firm.

I spoke to a broker previously before first arranging this mortgage in principle and couldn't find a better deal, so I think if I spoke to one now with a newly self-employed status it would probably be even worse in terms of the deals I could get.

Get real. Newly self employed means no new mortgage. Except in truly exceptional circumstances. One thing you may want to clarify is how many partners there are. If your share is less than 5% then many lenders will continue to view you as employed. But failing to disclose the truth is fraud.

If I already had the mortgage and my employment status changed in this way then I believe I wouldn't have to inform the bank so basically not sure if I have to do so now before it is arranged - I certainly would have done if my situation had negatively affected my ability to pay the mortgage, but since it is for the better do they still legally need to be
informed?

Yes. You are changing property. It is a new risk for the lender.

zzzLazyDaisy

1 Can you accept the offer of partnership in principle, but delay it until after you have found and completed on a house?

2 If your employment status changes before completion then yes, you must declare that change in status. But in this case you may find it does not make as much difference as if, say, you were leaving your current position to start up a whole new venture on your own, as you will presumably have a degree of security being a partner in the firm, since the other partners would have to buy you out or dissolve the partnership if you were to leave.

It may be worth speaking to your lender (and a mortgage broker if necessary) to explore your options. It may not be as bad as you think.

Daisy

PS congratulations on the promotion!

djantler

OK, thanks all, sounds like I will have to inform them. It just seems a bit crazy that if I'd got the promotion a day after buying a property there would be no issue. Likewise if I'd lost my job a day after buying a property!

opinions4u wrote: »

I would hope you're intelligent enough to realise that an income you no longer have is not much use. But tell us more about the nature of the partnership compared to the size of the firm.

My point is that it's not an "income I no longer have" as I would still be taking a monthly salary at an equivalent level than my previous salary, except it would be a salary drawing rather than an employment salary. From that perspective it is a technicality, my ability to pay the mortgage would not be at risk.

opinions4u wrote: »

Get real. Newly self employed means no new mortgage. Except in truly exceptional circumstances. One thing you may want to clarify is how many partners there are. If your share is less than 5% then many lenders will continue to view you as employed. But failing to disclose the truth is fraud.

There are many partners, my share would be less than 5%. But "newly self employed means no new mortgage" is exactly what I am worried about. Realistically any lender that can use judgement should be able to see that a promotion from employee to partner at the same workplace should be a positive thing, but I'm worried that lenders these days (particularly following the credit crunch) will not be able to use that judgement, and that a box-ticker will immediately dismiss me as "newly self-employed" and hence no mortgage.

zzzLazyDaisy wrote:

Can you accept the offer of partnership in principle, but delay it until after you have found and completed on a house?

Unfortunately not - I haven't had an offer accepted on a property yet so realistically it would take too long. Out of interest though, everyone that suggested that not telling them would be fraud - would you still consider it fraud if this scenario was possible?

zzzLazyDaisy wrote:

congratulations on the promotion!

Thank you! It's just bad that the timing doesn't work so well! Sounds like I will have to get in touch with the lender and hope that they are understanding of the situation.

zzzLazyDaisy

djantler wrote: »

Unfortunately not - I haven't had an offer accepted on a property yet so realistically it would take too long. Out of interest though, everyone that suggested that not telling them would be fraud - would you still consider it fraud if this scenario was possible?

Well, bearing in mind that my opinion isn't really worth the screen you're reading it on..... :-)

Yes, I would say the situation is different. Why? Because anything can happen between considering an offer and finalising the deal. The deal isn't done until it's done. If you had an offer of new employment to start in 12 months time, or even 3 months time, you wouldn't expect to inform the lender as it doesn't alter your financial situation.

But really, the only person who could give you a proper answer would be a mortgage broker.

opinions4u

Apologies if my previous post alarmed.

The size of your partnership and nature of your salary would, for most lenders, be treated as continuous employment and not self employment.

Just tell the lender how it is - good luck!