Buy to Let Mortgages for the Self-Employed

Self-Employed people are often concerned that getting Buy to Let mortgage approval will be a challenge. But as long as you have the required deposit and can get a decent level of rent, finding a good deal isn’t usually a problem.

What are the features of a Buy to Let Mortgage?

Buy to Let mortgages are much like a residential mortgage, although interest rates are often more expensive. Generally, you will need a larger deposit; around 25% is typical but some lenders will accept less.

There is a choice of repayment or interest-only Buy to Let products. Many landlords opt for interest-only – although this does come with some risks.

What to consider for Self-Employed Buy to Let Mortgages

Lenders normally welcome Self-Employed applications. For Buy to Let, lenders are less interested in your personal income, focusing instead on the rent the property can generate. They will be looking for the rent to reach at least 125% of the monthly mortgage cost.

That said, some lenders will want you to meet minimum income requirements. This is to reassure them that you can pay the mortgage if the property has no tenant for a month or two. Not all lenders ask for proof of income though, and have products that some people see as self-cert mortgages, although strictly they’re not.

One thing to be aware of is that lenders often require you to own your own home.

Should I Buy to Let as an individual or through a Limited Company?

Many experienced landlords have set up limited companies to manage their properties, especially in the last few years. This is mainly to reduce their tax liabilities.

Whether you should do the same will depend on your financial situation. It’s a more common approach for higher rate taxpayers, who could lose 40% of their rental profits as tax. Meanwhile a limited company pays corporation tax at just 19%. But there are various pros and cons to setting up a company, so do seek expert advice.

What is a Special Purpose Vehicle (SPV)?

An SPV is a limited company that is purely set up for Buy to Let activities. Buying a property through an SPV means you will be treated as a business for tax and mortgage purposes, rather than as an individual.

An SPV can only receive income from rent. Most Buy to Let providers only lend to SPVs rather than other types of company.

It’s best to decide up front whether to run your Buy to Let business through an SPV or as an individual. Changing from one to the other in future can cost you money in fees and potentially Capital Gains Tax.

How do lenders assess income for a Self-Employed Buy to Let mortgage?

If a lender requires a minimum income, they will request proof of your earnings. For Self-Employed people this means sharing your most recent tax returns and company accounts. Two to three years’ accounting records are ideal, but one years’ accounts are acceptable for many lenders. Some lenders require no minimum income for Buy to Let at all.

Mortgage lenders will also check your credit score to check for debt issues in the past.