Buy to Let Mortgages for Self-Employed

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

It’s not as difficult as is commonly thought to get a mortgage as a Self-Employed person. The only thing that you will need to consider that others won’t, is that proof of income will be required for a longer period. Usually lenders will want to see a stable and regular income in your current role for two to three years.

The good news is, when you apply for a Buy to Let mortgage, there will be less focus on income than for a Standard Residential Mortgage application, as mortgages are based on the potential rental yield of the property. It’s important, therefore, to research local rent prices, before you consider a purchase.

Everything else that Buy to Let applicants should consider are relevant to everyone, regardless of your employment type. For example

  • What type of building or tenants will maximise your income potential?
  • Whether you’ll be able to achieve rent of 125-145% of your mortgage repayments (as per normal lender requirements)?
  • Whether you have a 25% deposit available
  • Why it can be beneficial to take out a Landlord protection policy, especially to cover periods of vacancy
  • How you will repay the lump sum of the loan at the end of the mortgage term

What are the features of a Buy to Let mortgage?

Whilst you can apply for a Buy to Let mortgage as a Self-Employed applicant, there are a number of other criteria that you will need to meet in order to secure an offer.

First of all, you will often need to own a residential home of your own, before you apply for this type of mortgage. You will need to have a fairly high credit score and be able to repay the mortgage in full, before the age of seventy. 

In addition, the majority of lenders have a minimum income requirement of £25,000 and some will also require that you already have landlord experience.

Some important things to note about Buy to Let mortgages are:

  • They are often Interest-only
  • They are not regulated by the Financial Conduct Authority (except where you explicitly buy to rent to family members)
  • You cannot live in the property yourself for any reason

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

Tax laws around the ownership of rental properties changed in 2020, have led to many landlords using a Special Purpose Vehicle to purchase their Buy to Let properties, rather than buying as an individual.

Whether you will benefit from this method of purchase depends on your individual circumstances and tax status and, as ever, it’s important that you seek professional tax advice.

What is a Special Purpose Vehicle (SPV)?

An SPV is a limited liability company that is set up with the sole purpose of purchasing investment properties. 

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Our highly experienced Advisers are ready to help you with either buying or remortgaging a home, protecting your property and lifestyle along with saving you time and effort, ensuring you have a competitive deal right for you.

How will your income be assessed?

Your income will be assessed to ensure that you can afford the mortgage repayments, in the event that the property is not turning a profit. This is usually referred to as a financial stress test.

The same proof of income as required for other mortgage types will be required to evidence your income, including:

  • Two to three years of accounts, which have been signed-off by a qualified accountant
  • SA302 tax returns
  • HMRC tax overviews
  • Business bank statements, where applicable

What is Top Slicing?

Top Slicing is a process used by some Mortgage Lenders to assist Self-Employed Buy to Let applicants in achieving the high 25% deposit requirement. It allows them to utilise a director’s loan or dividends from their own company as the deposit.

There are potential personal and business tax implications to Top Slicing, so you should always obtain professional tax and financial advice first.

What are the tax implications?

  • Income tax is payable on rental income and profits of sale
  • Capital gains tax is due on the proceeds of sale
  • An extra 3% Stamp Duty is payable on all properties owned in addition to your residential home, worth over £40,000 

Are there any tax benefits?

Tax relief may be available to basic-rate taxpayers on some of the costs of owning rental property, for example towards repairs and letting agent fees.

How can Yellow Brick Mortgages help?

Here at Yellow Brick Mortgages, we can help you maximise your buying potential by finding the Buy to Let mortgage that’s best suited to your needs. No matter what type of Self-Employed business you carry out, our access to deals from across the mortgage market means that we’ll be able to find a competitive deal from a lender whose criteria you match.