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Buy to Let Mortgages for Self-Employed
Buying a Buy to Let property is often seen as a good investment for the future and can generate additional income. But is it more difficult for Self-Employed people to get a mortgage deal?
How does a Buy to Let Mortgage work?
A Buy to Let (BTL) mortgage works in the same way as a residential mortgage, but there are a few important differences. You usually find that interest rates are higher and that you’ll need a deposit of at least 25%.
As with a ‘normal’ mortgage you can choose either capital repayment or interest-only. Landlords often opt for interest-only to reduce their costs, but you will need to have a way of paying off the mortgage at the end of the term.
Another important difference is that lenders are more interested in the income your rental property will generate than your income.
What to consider for Self-Employed Buy to Let Mortgages
Because income is less important to lenders on a Buy to Let mortgage, it’s usually straightforward for Self-Employed applicants to find a suitable deal. The main criteria is that the rent on the property will cover at least 125% of the monthly mortgage payment.
Certain lenders will seek a minimum income requirement too, so that they are happy you can pay the mortgage if needed for any reason. Your rental property may not always have a tenant in place. Lenders often require you to own your own home as well.
How do lenders assess income for a Self-Employed Buy to Let mortgage?
If you choose a Buy to Let lender that sets a minimum income in its mortgage criteria, they often want to see evidence of your annual earnings.
For Self-Employed mortgages, that usually means they want to see recent tax returns and your company accounts. It helps if you have two or three years’ accounting records, but sometimes just one years’ accounts is enough.
The lender will also look at your credit score to find out how reliable you have been in the past at paying back any debts.
Should I Buy to Let as an individual or through a Limited Company?
You may be aware that landlords are increasingly setting up limited companies as a way to reduce their tax bills.
This is usually only a consideration if you are a higher rate taxpayer, as that means you could lose 40% of your rental profits in tax. A limited company, on the other hand, pays corporation tax at just 19%.
Setting up a company can be costly and there are some disadvantages, so it’s worth talking to a tax specialist or accountant for advice. You may need to set up a specific type of company called an SPV before you buy the property.
What is a Special Purpose Vehicle (SPV)?
An SPV is a limited company set up for Buy to Let activities. When you buy property via an SPV you pay tax and choose a mortgage as a business instead of an individual.
Most Buy to Let providers only lend to SPVs, so you should decide in advance whether it is best to create an SPV or buy your rental property as an individual. Making the decision later could cost you money in mortgage fees and potentially Capital Gains Tax.
What is Top Slicing?
Top Slicing is a relatively new phenomenon, and it’s something mortgage lenders can offer landlords. It helps them get a mortgage if the planned rental income is less than the 125% usually required.
Top Slicing gives borrowers the chance to prove affordability by bringing income in from other sources. It might be from their wider property portfolio or other personal income.
What are the tax rules for Buy to Let?
You will not have to pay tax on the first £1,000 profit you gain from rental income. If you make £10,000+ before allowable expenses, or between £2,500 and £9,999 profit after allowable expenses, you’ll need to do an annual self-assessment for income tax.
Allowable expenses are the costs you incur in letting a property: things like letting agent fees, maintenance, insurance and fixtures and fittings.
Other tax you need to prepare for includes stamp duty – and an additional rate applies on Buy to Let property. Remember too that when you sell the property, you may need to pay Capital Gains Tax on the money received.
How can a Mortgage Broker Help?
Investing in a Buy to Let property can be complicated, but the good news is that Independent Mortgage Solutions is here to make it easier. Many Buy to Let mortgages are only accessible through a Mortgage Broker, too, so it can be tricky to go it alone.
Let us explore your specific situation and plans, and then seek out the most suitable mortgage deals to suit them.
We’ve helped many Self-Employed people get a Buy to Let mortgage and become a landlord. We are fully authorised and regulated by the Financial Conduct Authority, so make contact with one of our expert mortgage advisors today.
Independent Mortgage Solutions is a trading style of IMS (Watford) Ltd. IMS (Watford) Ltd is an appointed representative of PRIMIS Mortgage Network. PRIMIS Mortgage Network is a trading style of Personal Touch Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority. Our registered office is in St Albans, Hertfordshire.
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
The Financial Conduct Authority does not regulate most Buy to Let Mortgage
Neither IMS (Watford) Ltd t/a Independent Mortgage Solutions or PRIMIS Mortgage Network is responsible for the accuracy of the information contained within the attached linked site