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Buy to let mortgages for the self-employed needn’t be a painful process.
Preparation is key, so working with an experienced mortgage broker that knows self-employed criteria well, early in the process, can prove to be very useful.
At Rosehill we’d carry out a full assessment of your documents and aim to have you fully prepped for your buy to let mortgage to allow for a smoother process.
In the meantime we’ve created a simple guide on buy to let mortgages for the self-employed below.
Overview of topics being discussed:
These products are made specifically for those looking to rent out a property to tenants in return for rental income.
Buy to let mortgage products available to the self-employed are the same as those available for employed applicants.
However, lenders may have specific eligibility criteria, such as minimum income requirements, so you’ll want to prepare yourself ahead of your property search.
It’s certainly possible.
For buy to let mortgage applications, mortgage lenders are less concerned with your level of income when compared to a residential mortgage application.
Instead, lenders are more focused on the rental income achievable.
Some lenders may require 2-3 years’ worth of tax returns to consider an application, particularly if they have a minimum income requirement for a buy to let mortgage.
However, one years’ accounts is still adequate to many lenders.
Many lenders will have a minimum income requirement (e.g. £25,000).
That being said, some have no minimum income requirement at all – they might just want to see evidence of AN income.
Calculating borrowing power for a buy to let mortgage is more complex than a residential mortgage.
Reason being is the lending is mainly based on the rental income achievable, among other factors such as the rate of tax you pay.
Lenders will usually want to see that the rental income covers the monthly mortgage repayments typically by 125% – 145%, at an assumed rate of 5% – 5.5% (although this varies).
Therefore, generally speaking, a higher rental income results in higher lending potential.
You may need a signed letter from an ARLA-certified estate agent confirming the rental income achievable.
At Rosehill, we take pride in building long-term relationships with our clients. We don’t see ourselves as just a mortgage broker, but rather a trusted partner who will be with you every step of the way.
At Rosehill, we take pride in building long-term relationships with our clients. We don’t see ourselves as just a mortgage broker, but rather a trusted partner who will be with you every step of the way.
Buy to let mortgage lending is typically based on the rental income achievable.
Therefore, if the rental income achievable is relatively low in relation to the property value, this can leave a shortfall.
Where this is the case, some lenders may allow you to use your personal income (or income from your existing portfolio) to top-up the lending.
First and foremost, this is a conversation you’ll want to have with a qualified tax-adviser.
Please note, a qualified accountant is not the same as a qualified tax adviser.
Due to recent tax changes, purchasing buy to let properties through a limited company has become increasingly popular, as this option can help reduce tax liability.
This is usually more common with higher rate tax payers.
However, interest rates for Limited Company buy to lets are usually higher than arranging a buy to let mortgage as an individual.
In addition, the associated fees may be higher too.
Before investing into a buy to let property, a tax adviser can offer tax advice specific to your circumstances, in order to ensure you’re making the most of your investment.
Setting up an SPV means setting up a limited company purely for buying properties to rent.
From a lender’s perspective, an application can be underwritten based on the company directors, rather than assessing financial accounts of a trading business.
Therefore there’s no surprise that many lenders typically require an SPV set up, although some can consider lending to a trading company.
Again, you’ll want to speak to a qualified tax adviser.
Similarly to a residential mortgage, a larger deposit will generally attract lower interest rates.
Unlike residential mortgages, the minimum deposit requirement will be higher for a buy to let mortgage – usually 25%, although a deposit of as low as 15% may be available.
Most lenders would want you to own your own residence.
However, there are some lenders that can consider an application without this requirement.
Changing your residential mortgage over to a buy to let mortgage when self-employed is possible.
You’ll just need to meet the lender criteria when doing so, as with any mortgage application.
This is known as a let to buy arrangement.
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As a mortgage is secured against your home or property, it may be repossessed if you do not keep up the mortgage repayments. Think carefully before securing any other debts against your home or property. The Financial Conduct Authority does not regulate commercial buy to lets and some forms of commercial mortgages. You may have to pay an early repayment charge to your existing lender if you re-mortgage
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