Buy to Let Self-Employed Mortgage
Kabeer Kher and Jon Barton explain how Buy to Let mortgages work if you are self employed.
Can you get a Buy to Let mortgage if you are self-employed?
Yes, you can get a Buy to Let mortgage if you’re self-employed. Typically the mortgage product is the same whether you’re self-employed or employed.
For Buy to Let mortgages it depends if you are buying property on a personal basis or as a limited company purchase. That’s where you tend to get a different product. On a personal name purchase the product will tend to be the same.
How is Buy to Let mortgage eligibility and affordability assessed when you are self-employed?
Buy to Let mortgages are mainly based on the value of the property you’re buying and its rental potential. Most lenders will have a minimum income criteria of £20,000, £25,000 or £30,000.
To assess that for a sole trader, they will look at your net profits. For limited company directors, it is mainly salary plus dividends, to check you’re meeting those minimum income thresholds. If you’re not, we can still find solutions for you. Just speak to your broker early on, so we can find those lenders for you.
What deposit will I need? How much can I borrow for a Buy to Let mortgage?
Usually you’d aim for a 25% deposit to access the best deals. Some lenders will do a lower deposit, but they increase the rates accordingly to reflect the increased risk of the lower deposit.
How much you can borrow is often dictated by the rental income. Sometimes higher deposits are needed if that rental income doesn’t quite meet the requirement for the purchase price.
Do many mortgage lenders specialise in self-employed Buy to Let mortgages?
No, it’s very much the same lenders. It’s different when it’s a limited company Buy to Let purchase – there, it does become more specialist.
In general, if you’re self-employed, it’s the same as being employed when you’re doing Buy to Let.
Should I Buy to Let as an individual or through a limited company?
It is all down due to your circumstances. To decide whether it’s best to buy as an individual or as a limited company, it’s really best to speak to an accountant or a tax adviser. There are increased costs but potential tax efficiencies, so it will largely depend on your overall goal.
You need to be clear about how many properties you’re looking to purchase in the future and how many you’re likely to end up with in the portfolio.
It will always come down to specific circumstances, so take that advice from a professional such as an accountant or tax advisor to see what’s going to be best for your overall goals.
Can I still get a Buy to Let mortgage if I only have one year’s accounts?
Lots of lenders out there will accept one year’s accounts. Some lenders don’t even need you to prove any income. If it’s really a problem, there are always options.
It does help if you’re a homeowner already – that can make it easier. You might have low income or just one year’s accounts, but there will be options there. Just speak to your broker and we can find those lenders for you.
What is a Special Purpose Vehicle, SPV?
An SPV is a company that’s been set up specifically to buy, sell and hold UK land and property. When you have an SPV you tend to get different mortgage rates to personal Buy to Let mortgages. But company Buy to Let mortgages also often have lower stress testing rates, which usually means you could borrow more.
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What is top slicing?
Top slicing is when we have a situation where the rent from a property is not enough to justify the loan you need. The lender can look to use your personal income to top up the affordability assessment and meet their stress tests.
So top slicing is basically using your personal income to justify the mortgage you want on a Buy to Let.
What are the tax implications when it comes to getting a Buy to Let mortgage as somebody who is self-employed?
It’s best to speak to your tax advisor or an accountant on this. They will explain the most efficient approach for your personal circumstances.
It varies so much. It will come down to the individual and what you’ve got going on in the background, so take advice on it to steer you in the right direction.
Can I remortgage a Buy to Let if I’m self-employed?
Absolutely, yes. In the same way as an employed person can remortgage Buy to Let, you can look to do that. It’s going to come down to your accounts and making sure you’ve got enough income for the lender.
If you do fall short, a broker like ourselves will get you some options to bridge the gap.
What if I have bad credit – can I still get a Buy to Let mortgage?
A lot of this will just depend on how bad the credit file is. We tend to find that usually Buy to Let mortgages can be a little bit easier to obtain, because of the larger deposit. Borrowing does not require the applicant’s income to support the loan.
Essentially, once the tenant is in place, they pay the mortgage, so it’s less risk to the lender. Because of that, there is less resistance in getting a Buy to Let mortgage compared with a residential mortgage.
How long is the Buy to Let mortgage application process? Are there any differences if you are self-employed?
It can take a bit longer if you’re self-employed, as the bank will go through your accounts and assess your affordability. It really depends on the property and how much yield there is.
If you’ve got a high yield Buy to Let property that doesn’t need top slicing, it shouldn’t take any longer than if you’re employed.
How can mortgage advisers help self-employed applicants?
We’ll guide you through the process and provide you with most suitable advice on who will lend you the most money and how the lender will assess your income. We can take the stress away and help you find the most appropriate deal. So give us a call and we’ll go through it all with you.
Your home may be repossessed if you do not keep up with your mortgage repayments.
The Financial Conduct Authority does not regulate most Buy to Let Mortgages.