Freelancers’ Questions: Will going self-employed affect my mortgage?
I am currently a full-time employee, however, I am actively looking at taking the plunge to become a freelancer. I currently have a mortgage with HSBC, so my question is if I'm looked to become self-employed, would this be a breach of my mortgage contract with HSBC? Or will be okay to continue with my current mortgage contract as long as I keep up the repayments?
When you apply for a mortgage, its the job os a bank to assess and make sure that you will be able to continue making the repayments of the mortgage. Therefore, HSBC will have done this, so you are under no obligation to inform them of your change in employment status as long as you are able to continue making your monthly payments.
When it comes to loans and mortgages, the general understanding is that changing jobs, going self-employed or freelancing won’t affect the ability of you, the borrower, to pay. So, unless you believe that your repayments will be affected by your employment status, there is no need to notify the lender, which in your case is HSBC.
That being said, it's vital that you let your lender know right away if you are unable to make any of the repayments. This may be due to the somewhat unstable nature of self-employed income, so it would be best that your lender is aware of the situation. It would be much easier for a lender to work with you as the borrower to possibly change the repayments and help you make those repaying rather than repossessing your property as this will just increase the workload on their end. If you think that you may struggle with the payments, then it would be best for all parties involved to know that the lender is aware of your situation.
Although, changing your employment status is not a problem for lenders (if you are keeping up with your repayments for your mortgage), there are, however, a variety of factors which could lead you to breach your mortgage contract, some of which you may find surprising. Your lender will likely differ from others as they all have their own unique terms and conditions, however, this is a brief summary of some of the terms and conditions that you need to be aware of that are the most common to most lenders:
o The lender needs to make sure to have buildings insurance in place. If the borrower fails to have a buildings insurance in place then the lender will likely take out a separate policy. This will then mean that the borrower has to pay the premiums and admin costs involved.
o Comply with any covenants or easements relating to the property – this could be a no-pet clause on a flat, paying ground rent or a service charge.
o The lender must make sure not to make any changes that would mean the value of the property would drop. For example, demolishing part of the property, a garage or outbuilding even if the borrower intends to replace it.
o The lender needs to be notified of any planning applications that apply to the property. This would also mean than the lender consent needs to be given before any plans to make any structural alterations to the property are put in place.
o The proper owner needs to make sure tell the Inform the lender of any planning applications locally which might affect the value of the property. This could include any road widening or landfills.
o The property has to be kept in a good state.
o If the property is leasehold properties then the borrower needs to gain consent from the lender before making any changes to the lease.
o The lender needs to give explicit consent before the property is sublet or fully let. So the lender needs to make sure to seek consent before any sort of letting.
o The lender needs to have a right to inspect the property and this is to make sure that the conditions set in the mortgage agreement/contract are being met. An example of this is if an inspection was carried out to ensure that there are no tenants living in the property if owner-occupied basis mortgage was taken out.
o The lender needs to give consent if the lender wants to sell or transfer any part of the property.
o If the lender enters a bankruptcy order – then the lender reserves the right to seek immediate possession of the property.
The safest option is no comply with all the factors listed above and not breach the conditions. If any of those terms are breached, then the lender may give the borrower 2 months to repay any of the costs involved.
If you are thinking about going self-employed, and feel like there might be a conflict you should get in contact with your lender and let them know about the changes in your working situation. Alternatively, if you have used a mortgage adviser, it might be best to get in touch with them and get them to pass the message on to your mortgage provider.
The expert was Tony Harris, founder of ContractorMoney, an IFA specialising in freelancers, contractors and the self-employed.
More on freelancer mortgages.
14th May 2015