Buy to Let Mortgages for Self-Employed

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Buy to Let Mortgages for the Self-Employed 

Finding a Buy to Let mortgage when you’re Self-Employed is perfectly possible. It just involves a little research and planning. As long as your business is performing well and you have a good deposit, it should be possible to find a good Self-Employed Buy to Let mortgage.

What are the features of a Buy to Let Mortgage?

A Buy to Let mortgage isn’t radically different from a standard residential mortgage. Because it’s a more commercial arrangement, in that you’ll be making a profit from your tenants, borrowing is a little more expensive but not discouragingly so. 

You’ll usually need to contribute a larger deposit – around 25% typically, but sometimes a little more. Mortgage rates tend to be less favourable than with a residential loan but are still very low in historic terms. 

Things to consider when Buying to Let if you are Self-Employed

In general, lenders will want proof that you can generate enough rent from the property you’re buying to easily cover the repayments on your mortgage. You should aim for the rent to be at least 125% (140/145% for higher rate tax-payers) of the monthly mortgage cost assuming an interest rate of 5%. Some banks will reduce these ‘stress rates’ if opting for  a fixed rate of 5 years or more. 

Some lenders will also want to check that you can afford to pay the mortgage yourself if you don’t have a tenant in place. In some cases they will check that you meet their minimum income requirements. 

Other more specialist lenders are much more flexible and will trust you to keep up with the repayments and are unconcerned as to what your personal income is.

A further requirement from many lenders is that you already own the home that you live in.

How is income assessed if you are Self-Employed and purchasing a Buy to Let property?

Some lenders will want proof of your income, to check you can pay the mortgage if needed.

For an employed person, this just involves confirming their salary via a payslip. Self-Employed applicants can prove their income via their most recent tax returns, and sometimes via company accounts – it depends on the lender. You will often be asked for two or three years’ accounting records. 

As with any loan, mortgage lenders will also check credit scores to make sure you have a good track record in paying back debts. 

Should I choose an interest only Buy to Let mortgage or a Repayment mortgage?

Many landlords choose interest only mortgages. Because the repayments only cover the interest on the loan, and don’t repay any of the capital, they are significantly lower. That means you make a larger profit on the rent that comes from the tenant.

But at the end of the mortgage term you will have to repay the loan in full. It is important to have a clear repayment plan, as it can be risky to assume that you can sell the property for more than the outstanding mortgage. House prices can fall as well as rise. 

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

As you may know, some experienced landlords set up limited companies to manage their properties. Whether this is the right solution for you will depend on a number of factors. 

The main advantage of setting up a limited company comes when you’re a higher rate taxpayer. Because you pay tax on the profits from your tenants’ rent, higher rate taxpayers will pay 40% or 45% to the government. Meanwhile, a limited company pays corporation tax at the prevailing rate which is currently considerably lower. However, you will then pay additional tax on any income taken from the company

There are pros and cons to setting up a limited company, so it is worth seeking expert advice.

What are the Tax Benefits/Implications?

The government have made recent moves to reduce the items that you can offset against the income received to reduce any tax liability. Mortgage interest relief is now only given at base rate tax irrespective if you are a high or higher rate tax-payer. You should speak to a tax expert to fully understand your tax position before embarking on a buy to let purchase

Another important tax consideration is that if you sell your rental property, it is subject to Capital Gains Tax.

Neither Purely Financial Planning Limited or PRIMIS Mortgage Network is responsible for the accuracy of the information contained within the linked site.

How can a Mortgage Broker Help?

Most Buy to Let mortgages are accessed through Mortgage Brokers. As a Self-employed applicant, you will certainly benefit from mortgage advice to find a lender that is likely to approve your Buy to Let mortgage application. 

Our mortgage advisors have years of experience in helping potential landlords find suitable mortgage lenders for their specific requirements. We are fully authorised and regulated by the Financial Conduct Authority, so let us take the stress out of your search.

The Financial Conduct Authority does not regulate most Buy to Let Mortgages