Buy to Let Self-Employed

Can you get a Buy to Let mortgage if you’re self-employed? Are there Buy to Let mortgages for self-employed applicants?

You certainly can get a Buy to Let mortgage if you’re self-employed. There are lenders that cater for self-employed applicants, and there will be some obvious differences in how lenders approach applications for the self-employed compared to an employed person.

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

In terms of eligibility, lenders typically look a bit further back into the history of your self-employment. For example, for an employed person, you only need to provide a few months’ evidence of income, whereas with self-employed people they may ask for the previous two years’ tax calculations and tax year overviews. Some even go as far back as three years.

The way income is assessed has changed over the years. It’s now mainly calculated based on the expected rental income rather than the income of the applicant.

However, some lenders will still insist on a minimum level of income before an application can be considered – typically £25,000. Other lenders out there don’t need a minimum income and solely look at the rental income. The target rental income ranges from 125% to 145% of the monthly mortgage payments.

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

For the majority of lenders, particularly in Northern Ireland, you will need a minimum of 25% deposit. A smaller number of lenders, mainly in England, will accept 20%. This is the same whether you’re employed or self-employed.

How much you can borrow is entirely dependent on the amount of rental income you’re expecting to receive from the property. As we explain in our Top Slicing podcast, if the rental income doesn’t cover the mortgage, we may be able to use some of your personal income too.

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

There are specialist Buy to Let lenders, such as Birmingham Midshires, or BM Solutions as they market themselves, who also deal with the self-employed applicants.

But I wouldn’t say any specific lender springs to my mind that specialises in the combination of the two. Most lenders will lend to self-employed people – they don’t discriminate in that sense.

What should self-employed applicants consider when purchasing a Buy to Let property? Should I Buy to Let as an individual or through a limited company?

Any self-employed applicant should check lender criteria before making a plan. Seek the guidance of a broker rather than trying to do it yourself. You’ll need your usual evidence of income with two or three years’ SA302s or tax calculations. You will also need tax year overviews, three months’ bank statements and proof of deposit.

Whether you should do it as an individual or through a limited company is too detailed to answer here. We should probably do a separate podcast on that. But in short, limited company Buy to Lets are usually for more experienced, portfolio landlords. It does have tax benefits, but it limits your lender choice.

What is a special purpose vehicle or SPV?

This is the name given to the limited company referred to in the previous question. It’s not like a normal limited company. People asked us quite frequently whether they can use an existing limited company to buy property, but that’s not usually an option.

An SPV is a specific type of business with the sole purpose of purchasing and managing Buy to Let properties. It’s definitely a safer, more tax efficient route as a separate legal entity owns the property. If things go wrong, it’s not the individual that gets chased, it’s the company.

That helps in terms of protecting yourself, but it does come with its own drawbacks in the limited number of lenders. You will always have higher rates charged by those lenders.

What is top slicing?

Top slicing is when a lender allows the use of the landlord’s personal income to top up the rental income affordability for the mortgage.

When the rental yield or rental income is not quite covering the required percentage of the mortgage payments, sometimes the lender will allow personal income from the applicant to supplement it. It’s just a way of allowing landlords a little bit more flexibility.