The Client
The client was a married couple who owned their residential home, currently subject to a mortgage and two further advances. They wanted to raise funds to clear all three and free up capital for multiple buy-to-let purchases. The husband was the sole source of income and had started a new job around six weeks before the fact find, still within his probation period. The wife stayed at home to look after their three children.
The Scenario
The clients wanted an interest-only residential mortgage. This immediately raised several obstacles. Most lenders require enough equity in the property to treat its eventual sale as an acceptable repayment strategy for a full interest-only loan. On top of that, minimum income requirements for interest-only lending typically start around £75,000 for a single applicant or £100,000 joint – the husband’s £66,000 income sat below that threshold. Three dependents on a single income also raised affordability concerns with most lenders, and the recent job change, still within probation, added a further complication.
The Solution
A part and part mortgage – part interest-only, part capital repayment – fitted the case well, though only one lender on the panel offered this structure with the flexibility needed here. This lender accepted the £66,000 income, did not treat the three children as a barrier to affordability, and was comfortable with the client being newly employed and still in probation.
The lender also allowed up to 60% loan to value on the interest-only portion, plus a further 15% on repayment, for a combined 75% LTV. Their approach to equity was more flexible than most: rather than a fixed minimum, they used a tool based on average property values in the area to calculate the equity needed at the end of the term. The full 75% balance did not meet that figure on its own, but once the repayment portion is paid down over the term, the remaining equity does meet it – the structure works because the interest-only and repayment elements are assessed together over the life of the mortgage, not just at the outset.
The Outcome
The clients secured the part and part mortgage, clearing the existing mortgage and both further advances while releasing capital for their planned buy-to-let purchases – achieved despite an income below the usual interest-only threshold, three dependents on one income, and a recent job change still within probation.
Frequently Asked Questions
Can I get an interest-only mortgage with less than £75,000 income?
Yes, though most mainstream lenders will decline below that threshold.
A small number of specialist lenders assess interest-only and part and part cases individually, and will consider lower incomes where the rest of the application is well evidenced.
Does being in a probation period affect a mortgage application?
It can with some lenders, but not all.
Some lenders decline applicants still in probation on a new role. Others will proceed as long as the income is stable and evidenced properly, so lender selection matters here.
How do lenders assess the equity needed for an interest-only mortgage?
Most set a fixed minimum equity figure that must remain at the end of the term.
Some lenders take a more flexible approach, calculating the figure against local average property values rather than applying the same fixed requirement to every case.
Do children as dependents affect mortgage affordability?
They can, but not automatically or with every lender.
Dependents are factored into affordability calculations, but how heavily they affect the outcome varies significantly between lenders.
If you have any questions relating to an interest-only or part and part residential mortgage, contact us today to speak directly with one of our Mortgage Advisors.
UK Mortgage Broker is a whole-of-market broker directly authorised and regulated by the Financial Conduct Authority. Your home may be repossessed if you do not keep up repayments on your mortgage.
Call: +44 1628 969 500
Email: info@uk-mortgagebroker.co.uk
Related Pages
- Residential Mortgages – whole-of-market advice for homeowners across the UK
- Self-Employed Mortgage – how lenders assess self-employed income for mortgage applications
- How Much Can I Borrow on a UK Mortgage? – income multiples and affordability calculations explained
- Buy-to-Let Mortgages – whole-of-market advice for landlords across the UK