Stay employed until next mortgage??

GadgetGuru

Ive completed my current mortgage 2 weeks ago.
My current property is valued around £260,000.

In the next 1-2 years when my oldest daughter finishes primary school, we are looking to move into something a little larger, and in another location with better schooling.

For this example, lets consider property price stays the same.
I will be using the full £260k as my deposit, and my budget for a new property would be around £400k - so I would be after a £140k mortgage.

Since I still have a year or two, I would have saved enough for stamp duty, other fee's etc, so none of that will be added to the mortgage.

I have a fantastic credit rating. Never had a late payment in my life. No overdrafts, no loans (other then the first mortgage) and never paid interest on anything before (again, other then the first mortgage).

I have tried some online calculators and can get a mortgage at a much higher level then that, so the £140k mortgage shouldn't be a problem if I stay in my current employment.

I am employed full time, and have been in my current post for the past 8 years or so. Obviously I have payslips etc to show my current salary.

The fact of the matter is, Im tired of my current role, and am considering moving into contracting instead (I work in IT). I would be earning a lot more for doing the same work. However, will being a contractor, and maybe registered as self employed, hurt my ability to get that mortgage, or just make it a harder process, a year or two down the line?

Basically, am I better off staying employed where I am for the while, until we have a new mortgage and have moved etc, and then contract only after we have settled?

stator

Being self employed would make it harder to get a mortgage, yes. You will need a couple years accounts, so you definitely don't want to go self employed shortly before applying for a mortgage.

ps by not using credit at all doesn't mean you have a great rating. Having a history of paying off debts on time is better than having no debt at all.

oli_ro

Permanent employment makes it much easier to get a mortgage. Period. This is what banks love and you are often in uncharted territory if you deviate from this.
If you don't want headaches and the move is really important for you, I would keep the current job or move house early and then go contracting.

Having said that, there are handful of banks that offer mortgage to contractors. But, each of them having their own specific requirements re track record as a contractor, length of time contracting, also depending on wether you will use a Ltd or umbrella there are specific requirements.

You need to have a chat with a broker specialising in contractor mortgages as they know each specific requirement. There are 2 main ones, I am not advertising for them, use google. I would not be surprised to you having to wait for while after switching to contracting to be able to access the mortgage.

I am in the same boat(started contracting a while ago, though), I cannot imagine applying directly for a mortgage as a contractor.

Good luck.

GadgetGuru

Thank you both for your informative replies.
I guess I'll be sticking on where I am for a while then!

suse*

2007 was contracting and went through one of the brokers. You only had to have a copy of your contract in those days. I ended up with a mortage with some people I'd not heard of before but it seemed a really good deal at the time. You might have heard of them now though, Northen rock? I don't blame the broker for what ended up happing as no one could have seen how bad things were going to be.

It took me 6 years to get out of the negative equity and by then I had gone perm again so I could then remortgage.

In your case it also depends on the mmr rules as to what your options would be if perm or contracting. Also your age too depending how long a term you might want, as some banks only lend up to your retirement age. So it is worth weighing up all these things, as well as if you then add trying to get a self employed mortage on top of all of that.

Good luck whatever you decide though. Just make sure you have a good emergency fund behind you to pay for the bills, but as well if you end up having to take a contract away from home to help cover up front travel expenses until you get your invoices paid.

suse*

Not to turn this into a pro's / cons of contracting but don't forget you will also need a lot of insurance which you might have included in your work package currently. So things like critical illness or long term sick pay, life insurance, health insurance and might be worth looking into things like jury duty insurance along with you indemnity insurance. Just as obviously if you're sick or want holiday you don't get paid, and can risk getting your contract cancelled with no notice, so you need to know how you'll pay this new mortage if it took you 3-6 months to find a new one.

I'm not trying to scare you, but not long after I bought my house my boiler broke then my contract ended although I'd been told before I'd be renewed, and it can get very scary quite quickly if you're not careful. Depending what area of IT you work in sometimes it can take a while to onboard for security checks etc as well so even if you got a contract the next day it might not be 2 months before you start then another month or more for your first invoice to be paid.

amnblog

stator wrote: »

Being self employed would make it harder to get a mortgage, yes. You will need a couple years accounts, so you definitely don't want to go self employed shortly before applying for a mortgage.

ps by not using credit at all doesn't mean you have a great rating. Having a history of paying off debts on time is better than having no debt at all.

You don't need two years accounts. Some lenders will work on one years trading.

As an IT contractor you can also access specialist deals with a handful of lenders via a good mortgage broker.

This is a tricky one as you could plan your life towards getting your next mortgage to find the world has changed by 2016 as it did in 2007/2008.

Perhaps the best thing you can do is speak to a broker now to get some idea of what you need to consider.

Thrugelmir

IftiBashir wrote: »

Basically, am I better off staying employed where I am for the while, until we have a new mortgage and have moved etc, and then contract only after we have settled?

An alternative view. You've repaid your current mortgage. So now is the time to change your job and give it a go. As you'll be stepping into the unknown. If things don't work out then you've time to return to permanent employment.