Starting a new job can be very exciting and rewarding, including exploring new opportunities and meeting new people.
In addition, buying a property can also be an amazing time as you plan to set down your first roots or embrace a bigger property, however combining the two life milestones can prove tricky!
During this article we will discuss the hurdles that potential buyers can face when seeking to obtain a mortgage when they have just started a new job.
The Documents Needed to Obtain a Mortgage
In order for lenders to assess a mortgage application and hopefully make an offer of the total mortgage value that they are prepared to lend, lenders require proof of income of all applicants.
Most lenders require copies of three month’s payslips from a current employer as part of their underwriting process. If the mortgage applicant has recently moved jobs, there are two options:
- They can either wait to apply for a new mortgage once three month’s payslips are available.
- Provide proof of their income and employment status in another way, such as a letter from their employer.
If relying on the second option, an applicant may find that there could be a reduced range of lenders willing to accept a letter from a new employer, or an offer letter from a potential employer as proof of income.
With a smaller pool of lenders available, the terms any mortgage offers may not be as competitive as available on the wider market as there are further risk factors involved.
Getting a Mortgage when you Have Just Started a New Job
As discussed, when you start a new job at a new company, you often don’t have the necessary documentation for a standard mortgage application, however the paperwork often isn’t the only concern as most lenders will also have lending criteria in relation to how long an applicant has been with their current employer.
Each lender will have varying criteria with regards to the employment duration, however the risks are increased for an applicant who has recently switched employers as they will still be in their probation period.
It is highly recommended that if you are seeking a mortgage and have recently started a new job, that advice is sought from an independent financial advisor, who can advise from experience, which lenders are more open to applicants within such circumstances.
It is not suggested that someone makes a mortgage application without being aware of the lender’s criteria. If a mortgage application is declined, the applicant’s credit report will be impacted and therefore this can have consequences for future applications.
What happens if you take a pay cut to start a new job?
If you end up taking a pay cut to start a new role, you may find that your change in income levels will also impact on your mortgage application.
Most lenders mortgage process involves a calculation of the total value that can be borrowed by multiplying the annual salary of the applicant(s) by a multiply factor, which is often between 3.5 and 5, however each lender will have slightly varying criteria.
Therefore, a drop in your income is likely to impact this calculation although if your new position has other financial elements within the remuneration package such as commission, bonuses, overtime or other financial incentive benefits, these may be included to offset any difference from previous income calculations.
As mentioned, each lender will have slightly differing criteria in relation to which financial elements can be included within the total annual income for the purposes of making a mortgage application.
Some mortgage lenders for example may accept bonuses and commission as part of the total income calculation, whereas others won’t, or will only take a percentage of the total bonus into their calculations of total annual income.
Also, it is worth noting that should there be a decrease in the total value that a lender is prepared to offer, this may also impact on the level of deposit needed to proceed with the purchase. In addition, the loan to value ratio may also alter, which in turn could impact the interest rate and terms that a lender is prepared to offer.
Each financial element will require supporting evidence to be provided as part of the application, for example overtime would need to be included within payslips for it to be considered by the potential lender.
If you are in the position where elements such as bonuses and commission make up a significant proportion of your total remuneration package, it would be highly recommended to seek the advice of a specialised mortgage broker before making any mortgage applications to confirm which lenders would be the most appropriate to approach.
What happens if your salary increases when you commence a new position?
If the new position is a promotion for example and benefits from a higher salary, you may be able to borrow more money, as the affordability calculations would increase.
This is a similar situation to a remortgage too, where they will take into account a number of factors like the affordability, loan-to-value (LTV) ratio and your credit history. It’s still possible to get a bad credit remortgage, but typically the criteria will be more stringent.
In this scenario, it is highly recommended that if you wish to include the higher salary within the mortgage application, that at least three months have passed since commencing the new role to ensure that sufficient payslips can be used as supporting evidence of the increased income levels as part of the mortgage application.
Going Self Employed
Should your new role be self-employed, there are often further hurdles to cross to be able to prove your income to a lender.
Most lenders who are prepared to offer a mortgage to a self-employed person typically request a minimum of two years accounts, and therefore it is worth baring these longer timeframes in mind should you wish to make a mortgage application in the future.
If you can control when you opt to become self-employed, sometimes it is suggested that a mortgage application is made whilst you are still employed, as long as you are certain that you will be able to keep up the monthly repayments when you make the leap!
However, if you are already self-employed, it is recommended that you seek the advice of a specialist mortgage broker before making a mortgage application, in order to discuss your options and explore the self-employed mortgage market.
New Job Mortgage Summary
During this article we have discussed the implications of switching jobs ahead of making a mortgage application, including the consequences of a variation in income following the new job.
Should you need any further advice in relation to mortgages, employment or methods of proving income, please feel free to book a consultation with our friendly team.