Buy to Let Self-Employed Mortgage
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Buy to Let Mortgages for Self-Employed
If you’re Self-Employed, buying a property to rent out is a great way to earn an additional income alongside your business.
Buy to Let mortgages for Self-Employed mortgage applicants are the same mortgage products offered to employed applicants. What’s different is how your mortgage application is assessed.
What are the features of a BTL mortgage?
BTL mortgages have different features to residential mortgages. That’s because lenders need to offset risks linked with lettings.
While they can differ from lender to lender, here are some of the basic features. As a potential landlord you will need to:
- have a deposit of at least 25% of the property price
- live in your own residential property
- earn at least £25,000 a year
- pay higher interest rates and arrangement fees
- be younger than 70 years old
Usually interest-only mortgages are taken out on Buy to Let properties. While payments are more affordable than repayment mortgages, you will need to pay off all the capital at the end of the term.
Unless you are buying a property to let out to immediate family members, your BTL mortgage will not be regulated by the Financial Conduct Authority. This means you’ll need to be sure of the terms and conditions you sign up to.
What should you consider when buying to let if you’re Self- Employed?
Important things you should consider before choosing your Buy to Let property, include:
- mortgage payments – can you afford them if your property cannot be occupied immediately, is between tenants or a tenant stops paying?
- location – is your property in the best possible place for the type of tenant you want?
- time – Will you be able to manage the property yourself while running your business, or is it best to engage a letting agent?
What are the Tax Benefits/Implications?
Your rental income minus expenses will be subject to income tax and must be included on your tax return. If you are a 20% tax payer, you will get some tax relief on your mortgage interest payments.
If you are a higher-rate taxpayer, tax relief is no longer available on mortgage interest. As with all tax-related matters, it’s best to consult your accountant on the most tax-efficient way to manage your BTL property or properties.
Buy to Let as an individual or Limited Company SPV?
It’s important to weigh up the pros and cons before deciding whether to set up an SPV or manage your BTL as an individual.
Some landlords set up a limited company to manage their Buy to Let properties. These limited companies are referred to as a Special Purchase Vehicles or ‘SPVs’.
If you go down this route you can deduct the mortgage from your rental income. However this could cost you more in other ways.
For example, when transferring your BLT property to your limited company, you will need to pay stamp duty again. Limited company accountants can also be more complex, costly to prepare and you will pay corporation tax.
On the plus side, to receive the rental income you will need to pay yourself a director’s salary and dividends, which are taxed at a lower rate.
What is Top Slicing?
Some lenders will add your personal income on top of the anticipated rental income to boost the amount you can borrow. This is called ‘Top Slicing’.
How will your income be assessed if you’re Self-Employed buying BTL Properties?
You may have heard of ‘Self-Cert mortgages’, where you stated your income but didn’t have to prove it. Today, with improved regulation, your Self-Employed income and affordability will be assessed by the lender’s underwriter.
When examining your application, using the factors below, the underwriter will determine how much to lend you.
- Your Self-Employed income based on your annual accounts and tax return. Salary and dividends if you’re a Limited Company Director, or income minus expenses if you’re a Sole Trader or Partnership.
- Your mortgage balance, monthly repayments and value of your residential property plus any other BTL properties you own.
- How much rental income you expect to receive.
- Evidence of a readily available deposit.
- Proof of your identity and where you live.
- Your credit risk – you’ll need to submit a recent credit report.
The good news is some Mortgage Lenders offering Buy to Let mortgages have low minimum income requirements. That’s because they are more concerned with the rental income than your personal income.
Having said that, lenders are currently more cautious because of the effect the Covid-19 pandemic has had on Self-Employed individuals and businesses. A lender will need to be sure you can afford your mortgage payments if your rental income is affected.
How can The Mortgage Company Help?
With more than 180 years combined experience of helping our landlord clients build their Buy to Let property portfolios, we can help you apply successfully for your first Buy to Let Mortgage.
During our initial meeting, we will find out about you and your Buy to Let property ambitions. With our knowledge of the local Buy to Let property market and specialist Self-Employed Buy to Let lenders, we will advise, guide, and help you find the mortgage that suits you best.
We will look after your mortgage application for you, helping you compile the documents you need, complete and submit your mortgage application for you. We’ll also deal with the lender on your behalf.
This will ensure you can remain focussed on your business. Contact us today for an informal, friendly chat about your Buy to Let venture.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
The FCA does not regulate accountants and some forms of tax planning & buy to let mortgages.
For tax planning and accountants, we act as introducers only.