Buy to Let Mortgages for the Self-Employed

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Buy to Let Mortgages for Self-Employed Applicants

What Self-Employed applicants should consider when purchasing Buy to Let property

As a Self-Employed person looking to purchase a Buy to Let property, your considerations are predominantly the same as any other applicant. The mortgage itself and the application process, from the applicants point of view, are no different than they would be for a PAYE applicant, other than in relation to proof of income.

As Self-Employed income is still seen to be less stable than income gained from more traditional employment, Mortgage Lenders will ask Self-Employed applicants to provide evidence of a stable income over a duration of two to three years.

Whilst you will need to prove a stable income, with a Buy to Let mortgage, there is less focus on your income when it comes to affordability, given that the loan is calculated based on the potential rental yield (income) of the property.

Some more general considerations that would be beneficial before you apply for a Buy to Let mortgage are:

Will your chosen property achieve 125-145% of the mortgage repayments in rental income? – research of the local rental market is advisable

  • Is there a way to maximise your income potential? – For example, you may consider the type of tenants or whether you will rent as a HMO (house of multiple occupancy)
  • Can you raise the 25% deposit requirement?
  • Landlord protection policies should always be considered to cover you for rent-free periods
  • Do you have a plan in place to repay the loan at the end of the mortgage term?
  • You won’t be able to live in the property yourself, not even during renovation

What are the features of a Buy to Let mortgage?

Another thing to consider before you apply for a Buy to Let mortgage is whether you will meet the criteria, as per the below:

  • You must be a homeowner
  • You need a good credit score
  • You must repay the loan before you turn seventy
  • Most lenders have a minimum income requirement of £25,000
  • Many lenders require prior landlord experience

You should also note that the vast majority of Buy to Let mortgages are interest-only and won’t be regulated by the Financial Conduct Authority unless you only intend to rent to close family.

Buy to Let as an individual or through a Limited Company?

Some landlords find it beneficial to purchase their Buy to Let properties through a Special Purpose Vehicle, rather than as an individual.

Whilst you may wish to consider this, you should be aware that high street lenders don’t tend to offer this option and you will need to use a specialist lender. Also, the benefits depend on your tax status, so it’s essential that you take professional tax advice before considering this option.

What is an SPV?

A Special Purpose Vehicle (Also known as SPV) is a special type of Limited Liability company set up specifically to buy investment properties.

How will your income be assessed?

Your income will be assessed to ensure that you can afford the mortgage repayments, but your loan won’t be capped at a multiple of your personal income, like it would with a standard residential mortgage, as it’s based on the rental yield of your purchase.

The documents you need will vary, depending on the type of Self-Employed activity you participate in, but will likely include:

  • Two to three years of accounts
  • SA302 tax returns / HMRC tax overviews
  • Business bank statements, if applicable

What is Top-slicing?

Mortgage Lenders may allow Self-Employed Buy to Let applicants to borrow a director’s loan or dividends from their own company to make up the large 25% deposit requirement. This is known as top-slicing.

There can be both personal and business tax implications to top-slicing, so it’s important to seek professional tax and financial advice before you consider it.

What are the tax implications?

  • Income Tax will be due on all rental income
  • Capital Gains Tax and Income Tax are payable when you sell the property
  • Stamp Duty is due on the purchase of any property additional to your home, valued at £40,000 or more, at a rate of an additional 3%

Are there any tax benefits?

Tax relief is available to landlords who are basic-rate taxpayers on costs such as repairs and letting agent fees.

How can Fancy A Mortgage help?

Here at Fancy A Mortgage, our Mortgage Brokers are experienced in helping Self-Employed applicants to find the most appropriate Buy to Let mortgage for their needs. Whether you’re a first time landlord or adding to a large portfolio of properties, we can help you to maximise your income potential by ensuring that you approach a lender who can offer the most competitive deal for your circumstances.

Your property may be repossessed if you do not keep up repayments on your mortgage
Some buy to let and let to buy mortgages are not regulated by the Financial Conduct Authority

Your property may be repossessed if you do not keep up repayments on your mortgage.

Some Buy to Let and Let to Buy mortgages are not regulated by the Financial Conduct Authority.