Contractors' Questions: Will being a contractor affect my mortgage?
Contractor’s Question: I'm currently in full time employment but am actively looking at taking the plunge into freelance contracting. I have an existing mortgage with HSBC and I'm wondering whether moving into working for myself would likely breach my mortgage contract. Or would I be able to continue with my mortgage as long as I keep up the repayments?
Expert’s Answer: HSBC will have assessed your ability to pay the mortgage at the time you applied for the loan and as such, you are not under any obligation to inform them of your change in circumstances provided you’re able to continue making your monthly payments.
The general interpretation is that changing jobs, going self-employed or contracting won’t affect the ability of you, the borrower, to pay, so unless you think it will, there is no need to notify the lender.
That said, if you do decide to start contracting as an independent professional and your income takes a short-term dip, then it is vitally important to notify your lender straight away, especially if you are going to struggle to make your repayments. Lenders don’t like repossessing properties and are far more likely to try to work with you to find a solution, so tell them in advance, rather than miss a payment and hope for the best.
So while changing your career path isn’t an issue for lenders (as long as you keep up the repayments on your debt), there are a number of things that could lead to you breaching your mortgage contract, some of which may come as a surprise. Every lender is different but this is a brief summary of some of the conditions that you may not be aware of which are common to most lenders:
- Maintain adequate buildings insurance – if the borrower doesn’t, the lender can take out a separate policy and charge the premiums (and admin costs) to the borrower
- 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
- Not to do anything to lessen the value of the property – this could be demolishing part of the property, a garage or outbuilding even if the borrower intends to replace it
- Notify the lender of any planning applications relating to the property – the borrower would need to seek the lender’s consent if they plan to make any structural alterations to the property
- Inform the lender of any planning applications locally which might affect the value of the property – such as road widening or land fills
- To keep the property in a good state of repair
- For leasehold properties – not to agree to any alterations to the lease without prior consent from the lender
- Not to sublet or fully let the property without prior consent from the lender
- To allow the lender to inspect the property to ensure the conditions of the mortgage are being met – this could be to ensure that if the mortgage was arranged on an owner occupied basis, that there are no tenants at the property
- Not to sell or transfer any part of the property without prior consent from the lender
- Not to enter a bankruptcy order – the lender will usually seek immediate possession of the property in this instance.
If any of the above conditions are breached, the lender can either comply with the points above on behalf of the client and recover the costs from the client or call in the debt, giving the borrower, you, three months’ written notice.
So if in doubt, it is a good idea to give your lender a call to inform them of any significant changes to your property or your own circumstances. Or, if you have used a mortgage adviser to secure your mortgage, then they may be able to enquire on your behalf. Good luck!
The expert was Tony Harris, founder of ContractorMoney, an IFA specialising in mortgages, pensions and investments for freelance and contract professionals.