Many people believe that lenders prioritise permanent employees, and it is quite hard to get a BTL mortgage or a good deal when you are submitting a self-employed mortgage application. We have come across many clients who believed that it was impossible to get a good deal with a high street lender because they were self-employed, but who ended up with unexpectedly favourable deals.
In this short guide, we talk about the crucial facts people need to know when they try to secure a BTL mortgage, give you some tips on obtaining a mortgage if you are self-employed, and explain how our mortgage advisers can help identify and approach the most suitable lender and deal.
Self-employed people have many benefits; however, the situation is slightly different when it comes to mortgages. The good news is that some lenders who accept BTL applications have developed a more flexible approach when lending to self-employed people.
A potential applicant may be surprised to hear some lenders work with no minimum income requirement. For those lenders, even a smaller profit in the final accounts will be considered income. This is mainly because of the profit that the borrower would be expected to gain through a BTL mortgage, which is deemed to be self-funding. Most clients tend to go for an interest-only mortgage as they are looking for a higher net cash flow from the rental income. As the monthly mortgage payment will only consist of the interest component of the loan, the amount will be much lower than with a repayment mortgage, which will better assist the client in achieving a higher net cash flow.
If an applicant has history of owning buy-to-let properties, lenders will consider them to be an experienced landlord. Lenders view experienced landlords as less risky clients than first-time landlords.
Income criteria differs from lender to lender. Most lenders will require a minimum three-year self-employed history with two years of company accounts. Other lenders require a two-year history of self-employment and a minimum income of £25,000.
A very few lenders accept landlords with:
It is always good to talk to an expert in the mortgage industry. A mortgage broker will assess the income and the self-employed history and make sure the client is with the right lender.
With most lenders, the minimum deposit is 25% of the property value. A few lenders accept 15%-20% deposits. However, in that case the rates will be high, which will offset the benefit of earning a profit by letting out the property. Applicants may use personal savings, gifted deposits, or raise capital by remortgaging another property to fund the deposit. The higher the deposit put down, the higher the probability that a client will fall into the low-risk category. Also, it is prudent to have a larger deposit, just like with standard mortgages, as you benefit from a better interest rate from the lender.
Due to the nature of investment many opt for an interest only mortgage when purchasing a Buy to Let property. If you choose an Interest Only mortgage, your monthly payments will only be paying the interest and not reducing the loan balance (unless you make overpayments to purposely reduce the balance of your mortgage). This means that at the end of your agreed mortgage term, you need to repay your loan in full.
Buying to let through a limited liability company (SPV – special purpose vehicle — mortgages) is becoming a popular option among the self-employed. From April 2020, the tax rules around buy-to-let changed for individual investors. The interest they pay is no longer a tax-deductible expense. This has helped some higher-rate tax bracket contractors with spare cash to utilise their company funds more tax-efficiently by investing in properties through an SPV.
Anyone considering purchasing a BTL property should seek tax advice given the recent changes to tax regulation for investors.
We at WIS consider your unique priorities and circumstances, and discuss any complications with the business development managers of lenders when and where it is required. As we are operating across the whole of the market, we are always able to provide you with the most suitable deal.
Why not contact us to identify the right option for you?
Most buy-to-let properties are not regulated by the Financial Conduct Authority (FCA).
Your property may be repossessed if you do not keep up repayments on your mortgage.
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