Buy to Let Mortgages Self-Employed
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What to consider when purchasing Buy to Let Property as a Self-Employed applicant?
Mortgages have become more easily attainable for Self-Employed people in recent years, with many lenders acknowledging the growing number of Self-Employed workers in the UK and some specialist lenders even offering mortgage products exclusively to Self-Employed applicants.
Whilst Buy to Let mortgages have fairly wide reaching criteria to meet, the good news is, there will be less focus on proving your personal income than you would experience as a Self-Employed applicant for a Standard Residential mortgage application. This is because the mortgage is based on the potential rental yield of the property, rather than your income. Bear in mind, however, that you may still need to undergo a financial stress check.
Other than how you prove your income, the things you will need to consider when applying for a Buy to Let mortgage are largely the same as they are for any other applicant. For example:
- How to maximise your income potential (style of building, tenant type etc)
- Whether you should take out landlord protection policies
- Property research in your chosen area to see if the lender requirement of rental charges of 125-145% of your mortgage repayments are possible
- How you will provide the 25% deposit requirement
- Whether you meet all of the criteria of a Buy to Let mortgage (as below)
- How you will repay the mortgage at the end of the term
What are the features of a Buy to Let mortgage?
You will most likely need to meet the following acceptance criteria in order to secure a Buy to Let mortgage:
- Be a homeowner
- Have a strong credit score
- Repay the loan before you hit seventy
- Most lenders have a minimum income requirement of £25,000
- Some lenders will additionally expect you to have prior landlord experience
The vast majority of Buy to Let mortgages are Interest-only, meaning that you will need to pay the entire loan capital at the end of the mortgage term. Many landlords opt to sell the property, however, it’s important to also consider a back up plan.
Buy to Let mortgages are only used to purchase rental properties.They are therefore not regulated by the Financial Conduct Authority, unless the sole intent of the property purchase is to rent to close family.
Once a property has been purchased with a Buy to Let mortgage, you cannot live at the property for any reason, unless you change the mortgage type.
Buy to Let as an individual or through a Limited Company?
Since the change in tax laws surrounding investment properties in 2020, some landlords have chosen to use a Special Purpose Vehicle to purchase Buy to Let properties. A Special Purpose Vehicle (or SPV) is a Limited Liability company set up with the sole purpose to buy investment properties.
Whether or not this method of purchase will benefit you depends on your personal circumstances and tax status, so it’s essential that you take professional tax advice before you consider setting up a Special Purpose Vehicle.
How will your income be assessed if you’re Self-Employed?
Although your income is not as critical to a Buy to Let mortgage, you will still be assessed in terms of affordability to maintain the mortgage repayments, to provide back up for rent-free periods.
As a Self-Employed applicant, you will need to provide the following proof of income:
- Two to three years accounts (certified by a qualified accountant)
- SA302 forms for the same period
- HMRC tax overview forms
- Business bank statements, if applicable
What is Top Slicing?
Some Mortgage Lenders will allow Buy to Let applicants use a director’s loan from their own business in order to provide the 25% deposit requirement, which is known as Top Slicing. There are potential personal and business tax implications involved in this process, however, so it’s important to seek professional tax and financial advice first.
What are the tax benefits/implications?
- Income tax on rental income, profits of sale
- Capital gains tax on sale of property
- Stamp Duty, 3% extra is payable for rental properties worth over £40,000
- Tax relief, Some rental costs, i.e property repairs, letting agency fees (but only for basic-rate taxpayers
How can Heritage help?
For Self-Employed Buy to Let advice, speak to our friendly team of Mortgage Brokers, here at Heritage. We’ve helped Self-Employed investors from portfolio property owners through to first time landlords to find a competitive mortgage deal to suit them.
We have access to deals unavailable from high street lenders. This means we can ensure that you approach a lender whose criteria you meet, whilst maximising your income potential by saving you money on interest.