Client
A married couple buying a new residential property. Between them they owned their current home and one buy-to-let property each. Both worked on contract.
Objective
To raise the funds needed for the new purchase when only one of the two incomes could be used for affordability.
Situation
The couple were short of what the purchase required, and the shortfall was not really about deposit. It was about how much a lender would advance.
Mr had contracted for 27 years, which on any sensible reading is a stable working history. What lenders saw instead was a break between contracts. A gap is a recurring problem for contractors, because it reads to an underwriting system as interrupted income rather than the ordinary rhythm of contract work. That made a residential mortgage in his name difficult to place.
Mrs was also on a fixed-term contract, but her position looked different on paper. Two years with the same employer and no end date on the contract meant lenders were willing to use her income in full.
That left the whole purchase resting on one salary. On a conventional residential application, the numbers did not reach.
Challenges
- A 27-year contracting history undermined by a single gap between contracts
- Mr’s income effectively unusable for residential affordability
- The full purchase resting on one applicant’s salary
- A funding shortfall on the new property
What We Did
Rather than searching for a lender that would stretch on income, we moved the borrowing off income altogether.
The existing home was refinanced onto a let to buy mortgage. That converts the current residential property into a let property and raises capital against it, with affordability judged on the expected rent rather than on either applicant’s salary. The funds released went toward the new purchase.
We then raised further capital against the buy-to-let property in Mrs’s name, again assessed on its own rental income.
Both pieces of borrowing service themselves from rent. Neither consumes personal affordability. That is the whole mechanism of the case: the deficit was never in the couple’s finances, it was in what a residential lender was prepared to recognise, and shifting the borrowing onto rental-assessed products removed that constraint rather than arguing with it.
Solution
A let to buy mortgage on the existing residential property, plus a capital raise on Mrs’s buy-to-let, with both assessed on rental income and the proceeds applied to the new purchase.
Outcome
The couple completed on the new residential property, retained both buy-to-lets, and kept their former home as a let property rather than selling it.
Conclusion
Contractor income gaps are among the more frustrating declines in the market, because the underlying position is often strong. The route through was not finding a lender to overlook the gap. It was building the funding out of assets the couple already owned, on products where the rent does the qualifying.
Frequently Asked Questions
What is a let to buy mortgage?
Let to buy converts your current home to a rented property while you buy a new one to live in. The existing property moves onto buy-to-let terms, usually releasing capital at the same time, with affordability judged on expected rental income rather than salary.
Does a gap between contracts stop you getting a mortgage?
It narrows the lender pool considerably, though it does not rule out lending. Many lenders want continuous employment history, while contractor-friendly lenders assess the day rate and the overall contracting record instead of treating a renewal gap as broken income.
Can rental income be used instead of salary for affordability?
On buy-to-let and let to buy borrowing, the rental income is the affordability test. Lenders check the rent covers the interest by a set margin, which means this borrowing sits outside the personal income calculation used for a residential mortgage.
Can you raise capital on an existing buy-to-let to fund a residential purchase?
Yes, releasing equity from a buy-to-let is a recognised way to fund a deposit elsewhere. The lender will want the purpose declared, and the amount available depends on the rental coverage and the loan-to-value limits applied to the property.
Final Thoughts
Where personal affordability is the binding constraint, a more generous lender is not always the answer. Existing property will often carry the borrowing on its own rental merits, leaving the residential application to cover only what it needs to.
UK Mortgage Broker is a whole-of-market broker, directly authorised and regulated by the Financial Conduct Authority. Circumstances vary and the result here reflects these clients alone. It is not an indication of terms available to others. Your home may be repossessed if you do not keep up repayments on your mortgage.
Call 01628 969 500 or email info@uk-mortgagebroker.co.uk to speak with a qualified adviser.
Related Pages
- Buy to Let Mortgages – How rental income is stress tested and what coverage ratios lenders apply.
- Contractor Mortgages – How day rates, contract gaps and renewal history are assessed by lenders.
- Residential Mortgages – Advice on purchases, remortgages and complex income for UK homeowners.
- Can I Get a Mortgage – What lenders check on income, deposit and credit before approving an application.
- Best Mortgage Strategy – Weighing up how to structure borrowing across more than one property.