Buy-to-Let Mortgages if Self-Employed

What are the features of a Buy to Let mortgage?

Unlike Standard Residential Mortgages, the majority of Buy to Let mortgages are interest-only, rather than repayment. The interest rates can be higher, as well as the other fees associated with the application.

Once a property has been purchased with a Buy to Let mortgage, you cannot live in it. You should also be aware that it may not be regulated by the Financial Conduct Authority unless the property is expressly intended for close family members.

We can often help people get a Buy to Let mortgage even in the following scenarios: 

• When living in rented accommodation (non-owner occupier)
• With a 20% deposit, although 25% will ensure more preferential interest rates
• With no minimum level of income
• With historical adverse credit 
• With no maximum age restrictions

Other important factors to consider are:

• The loan amount is typically based on the potential rental yield of your property, rather than your income, although it is sometimes possible to ‘top slice’ which is a process of using some of your personal income towards the Buy to Let affordability
• Buy to Let mortgages taken as a business transaction are not regulated by the Financial Conduct Authority

What should you consider when buying a property to let if you’re self-employed?

Although you may face additional challenges than an employed person when applying for a Buy to Let mortgage, the mortgage industry as a whole has become much more receptive to the idea of self-employed applicants. There are even specialist lenders who deal solely in mortgages for the self-employed. 

In order to maximise the benefits of your Buy to Let investment, it’s important to consider where and what type of properties will attract the type of clients you’re looking for. There are slightly different Buy to Let mortgages required depending on whether you opt for single or multiple occupancy properties. You should also ensure that the property itself will provide adequate income to cover the mortgage repayments. 

With regards to property management, you should bear in mind that there are a number of Government regulations involved in letting property, which includes a new code of practice and electrical safety standards, both of which were brought into place in 2020.

Another important consideration is how you will cover the mortgage payment whilst the property is vacant. There are a range of Landlord protection policies that you can take out to protect your investment, should you experience a period without rental income.

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

Following tax changes around property ownership in 2020, many landlords have found it more beneficial to use a Special Purpose Vehicle (SPV) to purchase Buy to Let properties through a Limited Liability company, rather than as an individual. If you decide to use this route, most lenders will expect you to create a new Special Purpose Vehicle. However, some will be willing to consider companies that are already trading outside of the property industry.

It can be much more difficult, particularly on the high street, to find lenders who are willing to offer Buy to Let mortgages to those looking to use Limited Companies. We can help you to choose which mortgage would be most beneficial, although you should also seek professional tax advice before making a decision about if an SPV is suitable for you.

How will your income be assessed if you are Self-Employed and purchasing Buy to Let properties?

Lenders’ requirements for supporting documentation will differ depending on what type of self-employment you carry out, however, they will all need well-documented records of your trading history and you will need to prove your income.

Limited Company Director

Mortgage lenders use your individual salary and dividends from the business and some may be willing to include the full business profits. You will ordinarily need to provide the following documents to aid with their assessment where possible:

• SA302 or Tax Computations for the past two years
• Tax year overviews from HMRC portal to accompany the SA302 or Tax computations
• 3 months of business bank statements 

If you do not yet have two full years’ accounts, we may still be able to help you as we have access to a wide panel of lenders, some of whom can consider applications from self-employed people with only one year’s accounts. 

What is Top Slicing?

Top slicing is where the individual’s personal income is used to top up any shortfall in rent needed in the lender’s stress testing when applying for a Buy to Let mortgage. Not all lenders allow Top Slicing but it can be useful if the rental income is a little low in relation to the size of mortgage required.

What are the Tax Benefits/Implications?

There are some tax implications involved with becoming a Buy to Let landlord that you should be aware of. There’s also the potential for some investors to benefit from relief on their tax returns, depending on your tax band.

• 3% additional Stamp Duty is payable on the full purchase price amount of any Buy to Let property above £40,000
• Income tax may be due on any rental income earned
• Capital Gains Tax may be due on the sale of any Buy to Let properties.

If you are a basic rate taxpayer, you may be entitled to relief on some of the costs associated with being a landlord, such as property repairs, letting agent fees and council tax.

How can Fifty Nine Financial help?

There are a broad range of Buy to Let mortgage products available, but it’s not always obvious which is the most beneficial for you. Here at Fifty Nine Financial, we’re experienced at helping both first time and experienced landlords. We can help you to make the best out of your investment by guiding you towards those lenders who have the most competitive rates for your circumstances.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. The Financial Conduct Authority does not regulate most Buy to Let Mortgages.