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Buy to Let Mortgages for the Self-Employed
If you’re self-employed and considering applying for a mortgage, you might have concerns regarding your eligibility. It may be reassuring to know that, in fact, in recent years, most lenders have become slightly more flexible in their acceptance of self-employed applicants. (however due to recent pandemic some lenders have become more cautious.
Due to a difference in how buy to let mortgage applications are assessed, this flexibility is even more pertinent for those self-employed people with a desire to become a landlord.
What are the Features of a Buy To Let (BTL) Mortgage?
A buy to let (BTL) mortgage is intended for those looking to purchase a home in order to let it out for profit. If you take out a BTL mortgage, you will not be able to live in the property, however, you will be responsible for the mortgage repayments. In addition to this, you will need to be a homeowner already, in order to apply.
A mortgage taken out for buy to let purposes will not be regulated by the FCA (Financial Conduct Authority) except where you are letting the property to a close family member.
Whilst the majority of BTL mortgages are interest-only, the interest rates are usually higher than those of a standard mortgage. The fees associated with this type of mortgage are usually also higher.
The benefits, however, are the potential to earn a stable monthly profit from your property and a long term investment.
What Things Should You Consider when Buying to Let if you are Self Employed?
There are already a wide range of acceptance criteria that all applicants wanting to apply for a BTL mortgage need to consider. These include:
- You need to have a residential mortgage already (or own your own home outright)
- A strong credit rating is important, as with any application
- An annual income of £25k as a minimum is required for some mainstream lenders
- There will be a maximum age (which varies between lenders)
If you are a self-employed applicant, the additional things to be aware of are:
- Some lenders allow experienced landlords a BTL mortgage, with no income
- BTL mortgages are seen as less risky, as rental income cover mortgage payments
- It’s possible to find lenders who offer BTL mortgages without minimum income requirements
- Whilst high street lenders will likely expect three years of accounts, some specialist lenders may accept just one
It’s important to seek advice prior to making an application, as these options will not necessarily be easy to access. A Mortgage Broker will be able to provide additional advice.
Buy to Let as an Individual or Through a Limited Company?
Another important thing to consider is how you will apply for the mortgage. There are different tax implications depending on whether you apply as an individual or a limited company.
Due to changes in the tax rules surrounding BTL properties, it’s worth considering your route of application. Those applying as an individual can no longer claim tax relief on the interest they pay on a BTL mortgage.
Many landlords are now utilising an SPV mortgage (Special Purpose Vehicle Route) through a LLC. This allows for greater tax efficiency with mortgage payments.
How Will Your Income be Assessed?
For buy to let mortgages, income is assessed differently than for a standard mortgage. This is true, whether you are self-employed or employed. In fact, for a BTL mortgage, your personal income is less relevant than the income potential of the BTL property you intend to purchase.
As a self-employed borrower, your SA302s and tax returns will also be given a higher priority than your personal income. This will be beneficial to those who would prefer to leave the majority of the profits in their business, rather than taking higher dividends.
Your income tax rate will also be taken into consideration when calculating your loan amount. For example, it’s sometimes possible for a basic rate tax-payer to obtain a larger loan than a higher rate tax-payer.
How can a Mortgage Broker Help?
It is perfectly possible these days to obtain a self-employed buy to let mortgage. Having said that, the application process can be fairly complicated and therefore, finding the correct mortgage advice is important.
A Mortgage Broker can help you to find those mortgage lenders who have an acceptance criteria most closely matched to your individual circumstances. They also have a complete view of the market and can find the right interest rates available to you as a self-employed person.
Your home may be repossessed if you do not keep up repayments on your mortgage
Some buy to let mortgages are not regulated by the Financial Conduct Authority.