Self-Employed Buy to Let Mortgage

Self-Employed Buy to Let Mortgage

Paige explains how to get a Buy to Let mortgage if you’re self-employed.

Can I get a Buy to Let mortgage if I’m self-employed?

Yes, of course. Self-employed individuals getting a Buy to Let works in a very similar way as for an employed person. There are certain quirks to it, depending on your circumstances, but the short answer is yes.

How is Buy to Let mortgage eligibility and affordability assessed when you are self-employed?

On Buy To Let mortgages, the amount you can borrow and the affordability is judged on the property’s rental income, rather than your individual income. There are certain criteria with some lenders where you need to earn a minimum amount of money to apply – but only a few.

Many don’t require a minimum income – it just depends which lender we’re using. The calculations are done predominantly on the rental income.

What deposit will I need and how much can I borrow for a Buy to Let mortgage?

I would always recommend a deposit of 25%. You can sometimes get a mortgage with a little bit less deposit, perhaps closer to 20%, but the rates are quite high.

Are there Buy to Let mortgage lenders that specialise in self-employed mortgages?

Not so much specialised in self-employed mortgages, but many lenders specialise just in Buy to Let. They will all know how to deal with a self-employed applicant.

What should self-employed applicants consider when purchasing a Buy to Let property?

Generally, we’ll need your last two years’ accounts and SA302 documents, which are also known as tax calculations. You can download these from HMRC, and they will show us the split of your income and how you’ve paid yourself.

Sometimes lenders set criteria for you to earn over £20,000 or £25,000 a year. If you’re self-employed they will calculate this by averaging your last two years’ worth of accounts.

Should I purchase a Buy to Let as an individual or through a limited company?

It depends. There are benefits to both. When you have a Buy to Let as an individual you get slightly lower rates. But there can be tax benefits if you do it through a limited company, which some people may prefer.

I’m not an accountant so I can’t really elaborate on that much more. People with quite a few properties often consolidate them under one company, to make it easier to manage the whole portfolio.

What if I only have one year’s accounts? Am I still eligible to get a Buy to Let mortgage?

Yes. There are certain lenders that don’t have a minimum income requirement. They will still ask about your income and how you support yourself on a day-to-day basis, but they won’t need to see two years’ accounts.

They will understand that you’ve not been trading that long, and they may ask a few more questions during the underwriting process, but it’s not usually an issue.

What is a Special Purpose Vehicle or SPV?

In the simplest terms, an SPV is a type of limited company you set up that allows you to own property. You can’t just have a normal company, that’s perhaps set up for hairdressing or gardening, and then put a property into it. It needs to be a specific type of company.

What is top slicing?

Top slicing is a really useful tool that certain lenders offer depending on your circumstances. It’s a solution where the rental income from your Buy to Let is not high enough to meet the affordability for the loan you’re requesting. With Top Slicing, they can use your personal income in that calculation.

Let’s say the expected rent was £1,500 a month and you need to borrow £300,000. A lender might only allow you to borrow £250,000 based on that amount. If you or you and a partner have a combined income of £100,000, the lender will sometimes allow you to top up that £50,000 shortfall based on your earnings.

Can I remortgage a Buy to Let if I’m self-employed?

Yes, and that will work in the same way as a normal application. Lenders will assess you based on your self-employed merits.

Generally speaking, if the lending fits on the rental income alone, they won’t be looking too much into your personal income. They just need to see that you’re supporting yourself.

Is it possible to get a Buy to Let mortgage if I have bad credit?

Yes, but it is significantly harder. If you’re trying to go down the Buy to Let route with severe adverse credit, there aren’t many options available.

You would most likely be stuck with quite a high interest rate, which can make the purchase not such a great investment. Generally the purpose of a Buy to Let is to make money, and high mortgage payments can reduce that profit.

It is worth speaking to a broker about. Sometimes it’s better to wait till your credit is repaired. But it’s very personal. It depends on the bad credit situation and your personal circumstances – we can always take a look at it.

How long is the Buy to Let mortgage application process? Is it longer if you’re self-employed?

On average it takes two to three weeks from submission. It can be shorter than that, depending on how quickly the valuation is done. If you’re buying a property that’s already got a tenant in it, it can sometimes be hard to get access for a survey.

If the lender has further questions about the property or your income, the underwriting process can take a little bit longer. There’ll often be more underwriting questions for a self-employed applicant than an employed one, because your income varies depending on how well your business is doing.

How can a mortgage advisor help self-employed applicants for Buy to Let mortgages?

We’ve helped a lot of individuals and people who’ve created SPV companies get into the Buy to Let investment market. It might be normal residential properties that they’ve converted into Buy to Lets, or turning their current property into a Buy to Let whilst they move into a new home.

We’ve also helped lots of individuals in the commercial space who are self-employed. That works a little bit differently, but it’s certainly something we can do.

We’re helping more people get investment properties based on the best rates accessible to them – that way, they’re maximising the profit they can get.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

SOME BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.