Buy to let mortgage self employed

What are the Features of a Buy to Let Mortgage? 

A buy to let mortgage is aimed at those who are purchasing property with the intention of renting it out. The minimum deposit on a buy to let (BTL) mortgage is 25% of the property;s value. The product fees can sometimes be higher than residential mortgage products. The affordability check will be based upon the rental income of the property, but keep in mind that you will need capital for the short fall when there is no rental income.

Lenders will need you to own the residential property that you live in and there is a minimum income requirement of £25,000 a year. Some mortgage lenders will allow self-employed borrowers to use rental income and contracts as top slicing. You also have the flexibility of choosing to pay interest only on BTL mortgages.

What Things Should You Consider When Buying to Let if you are a Self-Employed Applicant?

You need to consider where to invest and make sure that there is a rental market there. You will be assessed on the rental income, so you need to ensure it is adequate enough to cover the mortgage repayments. Make sure that you have landlord insurance to cover yourself and keep some capital as there will be no tenant at times.

You need to budget and ensure that you can afford as a self-employed person to invest. Your stream of income needs to be stable enough when there is no rental income to cover repayments on your mortgage.

Buy to Let as an Individual or as a Limited Company? 

From April 2020 tax rules have changed and the interest you pay as an investor is no longer a tax-deductible expense. This is why the mortgage market is seeing a boom in contractors applying as limited companies.

You should speak to a mortgage advisor to know for certain the right route for you as every self-employed business is different. Both have positive and negative points, and a broker will be able to give you advice based upon your own personal circumstances.

How Will my Income be Assessed as a Contractor Investing in a Buy to Let? 

If you already have a residential mortgage, then your current lender will have already assessed your income so it will be assessed in the same way. Most lenders will look at your SA302 tax calculations and tax returns to ensure you can keep up with mortgage payments.

Whether you are inside or outside a IR35 contract you will be able to invest in a BTL property. Lenders are becoming more flexible when it comes to BTL and the type of contract you hold compared to residential mortgages.

Basic Rate Taxpayer or High-Rate Taxpayer?

It doesn’t really matter what taxpayer you are – lenders will focus on your income tax rate. If you are a self-employed contractor who has a day rate income, and you fall within basic rate tax then you can sometimes borrow more in comparison to a high-rate taxpayer.

If you are looking for a fixed deal which lasts for five years or more then you may be able to borrow more as you are seeking a long-term deal. There are downsides to fixed deals however and you should make sure to look into lenders terms before committing.

How Can a Mortgage Broker help?

A mortgage broker has access to the whole of the mortgage market and knows what lenders will have options for you. It can be difficult to find the right product and when it comes to investing you want to make sure you are getting the most out of your money.

Mortgage brokers are authorised and regulated by the financial conduct authority meaning they are qualified to help and can help with the legal documentation too. Brokers pride themselves in being efficient and making sure that they are catering to your needs. A general enquiry will not incur a fee so you can seek expert advice just from a call.

Mortgage advice is a speciality and they can help you with your mortgage application. 

Why choose Momentum Mortgages?

We know the importance of securing your future and knowing that you are making the right commitments. The mortgage market can be a minefield and we can help you to navigate through the lenders to the right mortgage for you. We put you first and want to make sure you feel more educated about mortgages and know everything you need to.

We have built trust with lenders and want to build trust with you and will tailor your mortgage mission to success whilst talking all of your needs and wants into accounts. We will be honest and look into your financial situation then advise you on the route to take. Get in touch – don’t hesitate and MASTER your future today.

Buying a Buy to Let mortgage is relatively straightforward, even for the Self-Employed. As long as you have a good deposit saved and your rental income will cover the monthly mortgage payments, getting a Buy to Let mortgage deal just takes a little research.

How does a Buy to Let Mortgage work?

Buy to Let mortgages work in the same way as residential mortgages – as a loan to buy a property that you repay on a monthly basis over many years. They often have higher interest rates than a residential loan, though, and you need a substantial deposit: around 25% is typical. 

Buy to Let mortgages come in the form of both capital repayment and interest-only products. Interest-only is slightly more popular among landlords, because the payments are significantly lower. That means you make more profit on your rent – but you will need to have robust plans in place to repay the loan in full at the end of the term. 

What do I need to consider for a Self-Employed Buy to Let Mortgage?

Generally, lenders are less interested in your personal income and more focused on how much rent you can generate from the rental property. Most lenders want the rent to equate to 125% of each monthly mortgage payment. 

Some mortgages do set minimum income requirements, however. The purpose is to reassure the lender that you can afford to pay the mortgage if your property has no tenants in place for a while. 

Not all lenders require proof of income.

Something to bear in mind is that many Buy to Let mortgage lenders will require you to already own your own home, however, if you are a first time buyer/first time landlord we can still help obtain a buy to let mortgage for you.

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

You may be aware of a trend in recent years for landlords to set up Limited Companies to manage and buy rental property. The main reason for this is to reduce tax liabilities, especially if you are already a higher rate taxpayer. 

An individual in this bracket would pay income tax at 40% on the profits from the rent, while a limited company pays corporation tax at just 19%. 

There are many more factors to explore and consider before setting up a company, however, so do seek financial advice before making any decisions. 

What is a Special Purpose Vehicle (SPV)?

An SPV is a type of limited company that is designed specifically for Buy to Let. It means that you can buy a property as a business instead of as an individual. Many Buy to Let mortgage companies will only lend to SPVs and no other types of company, and SPVs can only receive income from rent. 

There are lots of things to explore before setting up a company of this kind. Bear in mind that you may have to pay higher mortgage fees and interest as a business. Also, it is best to decide on your approach before you buy the property, as changing your mind later can be costly.

How do lenders assess income for a Self-Employed Buy to Let (BTL) mortgage?

Some, but not all lenders will request proof of your income. For Self-Employed applicants, that usually involves supplying two years HMRC Tax Calculations and Tax Overviews.  

Mortgage lenders will also explore your financial records and check your credit score.  

What is Top Slicing?

Top Slicing is a way for lenders to help customers get a Buy to Let mortgage when their planned rental income doesn’t meet the lender’s Inters Coverage Ratio (typically between 125% and 145%).

What are the tax rules for Buy to Let?

The first £1,000 of any landlord’s Buy to Let income is non-taxable. If your profit totals £2,500 to £9,999 after expenses, or £10,000+ before expenses, you will need to pay tax via an annual self-assessment. 

Allowable expenses are the costs of letting your property, such as insurance, advertising, repairs and letting agent fees. 

Another taxable element to remember is that additional stamp duty applies to Buy to Let property. When you sell, the proceeds may be subject to Capital Gains Tax. 

How can a Mortgage Broker Help?

Entering the world of property letting can seem daunting, but the good news is that Mortgage Marketplace can make it easy. Not only will we explore Buy to Let options on your behalf across high street brands and specialist lenders, but we will also help you at every step of your journey to becoming a landlord.

Our Mortgage Advisors do all the research on your behalf, make recommendations that suit your specific situation and then help you with your Self-Employed mortgage application. 

We are authorised and regulated by the Financial Conduct Authority. Contact us today for an initial consultation, free of charge. 

Business Buy to Let mortgages are not regulated by The Financial Conduct Authority.

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