Contractors’ Questions: Can I jump from renting to buy-to-let?

Contractor’s Question: How easy is it to jump straight from renting to buy-to-let? Would lenders look on me more favourably if I secured a residential mortgage first and then moved to buy-to-let? Unfortunately I’m unable to evidence much of my self-employed earnings, but I have just come into a sizeable lump sum of cash and I’d like to invest in bricks and mortar.

Expert’s Answer: Although most lenders will require you to already own a property before you can buy one to let it out, there are a handful of lenders who will offer first-time buyers an investment mortgage. This is therefore an option for you and with Buy-to-Let being hailed as the best investment of the last 18 years, purchasing an investment property could set you in good stead.

Contrary to popular belief, the need to satisfy income criteria is broadly the same whether you are purchasing a buy-to-let or a residential property to live in yourself, because the lender will need to ensure that you are able to cover the repayments if you have a ‘void’ without a tenant.

A specialist adviser can base that affordability on your contract rate alone, whereas if you were to approach a lender direct, they may demand to see up to three years of accounts showing a steady income.

A typical buy-to-let requires a 25% deposit. You mention that you have a sizeable chunk of cash to put down as a deposit so, before you explore the buy-to-let market further, have you fully considered an owner-occupier mortgage for yourself?

I obviously understand your concern that, as a self-employed freelancer, you believe that your poor earnings history will make it difficult to get a mortgage. But if you think that owner occupying is therefore out of the question, I may be able to put your mind at rest.  There are banks and smaller building societies that will look at your mortgage application very differently and, with a reasonable level of deposit, our contractor-friendly lenders can take a sympathetic view on gaps in your work history.

We work closely with leading financial institutions which understand your unique employment status, and similarly negotiate residential mortgages based on generous multiples of your contract rate alone. This can be up to five times your annualised income, so buying a property for you to occupy may be far more achievable than you think.

The expert was Tony Harris, founder of ContractorMoney, an IFA specialising in contractors, freelancers and the self-employed.