Planning ahead: what should I do if I'm applying for a mortgage in the next year?

Are you considering taking out a mortgage in the next year? It’s not always possible to predict when you’re going to buy a new property, as situations and opportunities can arise quickly, or conversely, can take much longer to progress than first planned. However, if you are able to think ahead, this can put you at a significant advantage when it comes to applying for a mortgage, because there are things you can do (or avoid doing) which will benefit your application.

If you’re currently in the fixed-term period of a mortgage product, this is even better, as you’ll know exactly when you need to take out a new mortgage and plan accordingly.

Of course, it’s important not to be too rigid; a lot can change in the course of a year. But if you’re expecting to apply for a mortgage within a year’s time, there are several things you can do in regard to your career which will put you in the best possible situation.

If you’re applying for a mortgage in the next year…

Do: seek a salary over commission

Those with significant commission-based income may be startled to discover they can’t get the mortgage they’d like, especially if your income more than supports the repayments. Unfortunately, even though commission can often be much higher than a traditional salary, many lenders will not take all of your commission into account. Accordingly, you may find yourself in a stronger position if you can negotiate to be paid a salary before applying for a mortgage. Likewise, try to avoid switching to a commission-based position in the months leading up to your application.

If you can’t avoid this, you’ll have to search much more carefully for a lender, to find one who is happy to accept all or most of your commission when calculating how much they will lend you. We can assist you with this, as we have a great deal of experience sourcing terms for client whose income is heavily commission or bonus based.

Do: see if you can take a quarterly bonus, rather than annual

No matter how big your annual bonus, some lenders will be reticent about taking all of this into account when calculating your mortgage affordability. This is because it’s difficult to prove that this income is consistent from one year to the next. A quarterly bonus, however, makes it much easier to demonstrate that you are consistently receiving the same level of income.

And if you’re in a heavily bonus-based industry, do stay in the same job until your application is complete. Even if you’re planning to move to the same job role/same industry, lenders will look to see a consistent bonus income with the same employer, not across two different companies.

Don’t: go self-employed or start a business

If you are recently self-employed, you’ll find it much harder to secure a large mortgage—so if you know you’re going to be taking out a loan, put your career change on hold temporarily if at all possible. Even if you have a high income coming in straight off the bat, it’s likely that you’ll need to show several years’ accounts in order to meet most lenders criteria.

Particularly if you’re trying to launch a company, you may find that cash flow is tight. This does not put you in an ideal situation when it comes to negotiating for a large loan, the best rate, or the highest loan to value.

Don’t: take a career break

One of the most important things when applying for a large loan is being able to demonstrate a consistent income stream in the time leading up to your application. Avoid taking breaks that could interrupt this, even if only for a few months.

What if doing one of the above is unavoidable?

In an ideal world, we’d all be able to plan our lives carefully—but of course, this isn’t always feasible. If movements within your career are unavoidable, don’t despair. Providing you know where to look, there are private and niche lenders who can take a view for high net worth (HNW) clients. This means they can work around issues such as being self-employed or being heavily bonus-based. However, accessing these lenders typically requires the help of a broker—so if you’re looking for a large loan and have concerns about your application, the Enness team are happy to advise you further.

If you’re looking to make a change such as going self-employed, it may be worth locking in a long-term fixed rate before you do this, so that you’ll have a decent amount of time with the same fixed-rate product before you have to refinance again. This could even stretch up to a 10-year fixed rate, giving you plenty of time to get your business of the ground, enjoy a career break, or otherwise.