Buy to Let Self-Employed
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Buy to Let Self-Employed
Jahed Mirza explains how the Buy to Let mortgage process works if you are self-employed.
Can you get a Buy to Let mortgage if you are self-employed? Are there Buy to Let mortgages for self-employed applicants?
Yes, 100%. There are plenty of Buy to Let mortgage options for self-employed applicants. In fact, a huge number of landlords in the UK are self-employed builders, shop owners, freelancers or consultants.
Lenders work with self-employed applicants all the time, but they just want to see more documentation, such as SA302s. While they need a bit more evidence of financial stability compared to someone who is employed, you can certainly get lending if you are self-employed.
How is Buy to Let eligibility and affordability assessed when you are self-employed? How will my income be assessed?
Buy to Let lenders mainly focus on rental income. The property will generate the amount of lending that you can get. However, you could use something known as top slicing, where the lender uses your income to give you additional borrowing.
For income they look at something called an SA302, your tax calculations and your tax overviews from HMRC.
Most lenders will normally ask for two years’ records. Certain lenders will use accounts prepared by a certified accountant. But the main thing to remember with Buy to Let is that the rental income is the key factor in terms of your borrowing amount.
What deposit will I need? How much can I borrow for a Buy to Let mortgage?
Typically with Buy to Let mortgages, we advise all clients to have a 25% deposit. Some lenders do accept 20% deposits, but rates can either be higher or there may be capped borrowing amounts.
The loan amount is usually also dictated by how much rent the property is generating. You may be looking to get 75%, but if the rent is slightly too low, you may be capped at 70% or even 65%.
Are there many Buy to Let mortgage lenders that specialise in mortgages for the self-employed?
Yes. There are mainstream options with the high street banks. There are BM Solutions, and The Mortgage Works, which are part of the Lloyds Banking Group and Nationwide. Then there are some specialist lenders such as Paragon, Interbay, Precise and Aldermore that are more flexible with self-employed clients and will look at more complex cases.
What should self-employed applicants consider when purchasing Buy to Let property? Should I Buy to Let as an individual or through a limited company?
This is a big decision and something we have a lot of conversations about with clients. The answer depends on your long-term strategy and tax position.
Buying as an individual is always simpler and usually the rate is slightly lower. However, buying through a limited company or a special purpose vehicle (SPV) as it’s known, can be a lot more tax efficient for high earners. Mortgage interest is fully deductible for companies, unlike for personal landlords.
In this situation, we always advise you to speak to a mortgage broker and a tax advisor before choosing your route.
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What if I only have one year’s accounts? Can I still get a Buy to Let mortgage?
One year’s accounts does make it slightly more tricky, but some lenders will consider applicants with just one year of trading. Your options are a little bit more limited in this situation and you will usually need to show a strong income and a solid business.
What is a Special Purpose Vehicle, SPV?
An SPV is a limited company that is set up solely for buying, selling or letting property. Most lenders prefer this structure when you’re applying for a Buy to Let mortgage as they want a company registered under certain SIC codes. It makes the lending process a lot easier.
What is top slicing?
Top slicing is something not all lenders do, but it can be very useful. It’s where a lender uses your personal income to top up the rental amount, or any shortfall in borrowing.
If you intend to buy a property and there’s a shortfall – perhaps you want to borrow 70% of the value of the property, but they’re only giving 65%, lenders may look at your income as a way to top that up. It will push the borrowing amount and usually get you a higher loan.
What are the tax implications with Buy to Let mortgages, especially if you’re self-employed?
As a broker I can’t really give tax advice, but here’s what many landlords consider. If you’re buying personally, you can’t fully deduct mortgage interest, but you can if you’re buying from a limited company. With tax issues, it’s definitely important to get advice from an accountant before setting up a limited company or going into a Buy to Let mortgage.
Can I remortgage a Buy to Let if I’m self-employed? How does that process work?
Yes, absolutely. In fact, many landlords remortgage to release equity, to get a better rate or restructure their portfolio. The process is very much the same as buying a property – be prepared. Get your SA302s, your bank statements and make sure you have good credit.
It’s a very similar process to being employed. You can definitely remortgage if you are self-employed.
What if I have bad credit? Can I still get a Buy to Let mortgage as someone who is self-employed?
It is still possible. There are adverse credit lenders that will consider Buy to Let mortgages, especially if your portfolio is strong. But bear in mind that with bad credit, you always have the pitfalls of higher rates, lower Loan to Value limits and stricter background checks.
Advise a broker when you are looking for a mortgage with bad credit, because we do have access to some specialist banks that can help you in this situation.
How long is the Buy to Let mortgage application process? Are there any differences to this if you are self-employed?
The process and the timeline are pretty similar. It’s standard across all Buy to Let cases. You’re usually looking at around four to six weeks.
However, different factors may dictate this – how quickly you can provide your documents, whether a valuation is needed and the lender’s processing speed. The lender you choose can affect how long it takes to get a self-employed Buy to Let mortgage.
The process is very similar to someone that’s employed. There’s not much difference in that situation.
How can mortgage advisors help a self-employed Buy to Let mortgage applicant?
As a broker, we can find lenders who understand self-employed income. We present your income in the correct manner – because if you’re self-employed, you may not know what documentation to send to lenders and what they’re looking for.
We can also navigate between limited company Buy to Let and personal ownership. We also have access to exclusive deals, which may help if you’re self-employed or buying through a limited company.
As a broker, we liaise with underwriters, valuers and solicitors to push the case through as quickly as possible. We save time and address anything else that may be needed in your situation.
What else do we need to know about Buy to Let self-employed mortgages?
I’d advise any client, self-employed, employed, remortgaging or purchasing, that preparation is everything. The more organised you are with your documentation, the smoother the process.
Don’t assume your options are limited just because you’re self-employed. With the right advice and the right lender, you’d be surprised how many doors are open to you.
So if you’re self-employed and thinking about buying or refinancing, speak to a broker early, structure your deal and hopefully we’ll get the right one for you.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.
For specialist tax advice, please refer to an accountant or tax specialist.
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