Buy to Let Mortgages for Contractors
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Finding a Buy to let mortgage as a Contractor can be very straightforward, with a little research and planning. If your contracting business is going well and you’ve saved up a sufficient deposit, Buy to Let Mortgages for Contractors should be well within your reach.
How does a Buy to Let Mortgage work?
A Buy to let mortgage is fairly similar to a standard residential mortgage – it’s a loan to buy a property, paid back long term. You can get them from high street lenders as well as specialist companies.
The main difference is that Buy to let can be a bit more expensive because it’s more business focused – after all, the aim is to profit from your tenants’ rent.
Most lenders expect a significant deposit – around 25% is the norm, but lower is possible. Mortgage interest rates are also higher than with a residential loan.
What should I consider when buying to let as a Contractor?
One important decision is whether to choose an interest only or a repayment mortgage. Many landlords go for interest only, where each monthly payment only covers the interest on the debt: you don’t pay the balance of capital off at all. As a result, monthly payments are much lower, and you therefore make more profit from your tenants’ rent.
At the end of the mortgage term, though, you’ll need to pay back the value of the loan, so you need to plan for that. Meanwhile, if you choose a repayment mortgage, your tenants will help you pay in full for the property over time.
The other main consideration with Buy to let mortgages for contractors is ensuring that you can attract tenants to your property who pay enough rent to cover the mortgage. A Buy to Let Lender will want clear evidence that you can command rent worth 125% of the monthly mortgage payment ideally more.
How will lenders assess my income as a Contractor for a Buy to let mortgage?
Rental income is the lender’s priority when assessing a potential customer, so if your planned rent easily covers the mortgage repayments a lender might not look very closely at your income. The same is true if you are able to contribute a large deposit.
Some lenders will look at your income, though, to make sure you can pay the mortgage when there’s no tenant in your Buy to let property. They may ask for details of your day rate, or perhaps your tax records stating your annual income.
Lenders will usually check your credit score too, to see whether you’ve ever had issues repaying financial commitments. If you’ve faced a personal credit crunch in the last few years, sadly this could affect your ability to borrow.
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Should I Buy to let as an individual or through a Limited Company?
It’s becoming more common for landlords to set up limited companies to buy and manage their property. Whether this could be right for you depends on your personal situation.
The benefits in setting up a limited company are largely tax related, and apply to higher rate taxpayers. You pay tax on the profits from the rent, which means that higher rate taxpayers will lose 40% or 45%. Because a limited company pays corporation tax at 19%, it is a potential tax saver.
There are pros and cons to setting up a limited company, so it is worth seeking expert advice.
How does tax work for a Buy to Let Property?
You don’t pay tax on the first £1,000 you make from your rental property – the ‘property allowance.’ If you gain £2,500 to £9,999 after ‘allowable expenses’ (or £10,000 or more before expenses) you will need to pay tax via an annual HMRC self-assessment.
‘Allowable expenses’ refer to the costs of letting the property, including general maintenance, insurance, letting agent fees and management fees.
Something else to bear in mind is that if you sell your rental property, the funds you gain are subject to Capital Gains Tax.
How can a Mortgage Broker Help?
A lot of Buy to let mortgages are only available via Mortgage Brokers, and as a Contractor mortgage advice will almost certainly help you. As mortgage experts Mint can identify lenders likely to approve your Buy to let mortgage application.
Most Buy-to-Let Mortgages are not regulated by the Financial Conduct Authority
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