Buy to Let Mortgages for the Self-Employed
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Buy to Let Mortgages for Self-Employed Applicants
What are the Features of a Buy to Let Mortgage?
Buy to Let mortgages differ from other residential mortgages quite substantially and have fairly substantial acceptance criteria. The good news is, it’s certainly possible for Self-Employed mortgage applicants to secure one, with the right lender and plenty of prior preparation.
A Buy to Let mortgage will predominantly be an Interest-Only mortgage product, so you will need to consider the final loan payment at the end of the repayment period. The interest rates associated with Buy to Let mortgages can also be higher than Standard Residential mortgages, although they have become more competitive in recent years.
Once there is a Buy to Let mortgage in place on a property, you will not be able to reside in the property yourself, even temporarily throughout renovation works. They are also not regulated by the FInancial Conduct Authority, unless you have bought the property specifically to rent to close family members.
One of the most significant differences with a Buy to Let mortgages is how the lender determines how much you can borrow. This will be based predominantly on the rental yield (potential rental income) from your chosen property, rather than personal income or credit score. You are likely to need to undergo a financial stress test, however and will need to put in a minimum of 25% deposit.
Should I Buy to Let Individually or through a Limited Company?
It’s important to seek professional tax advice on this subject, as which option benefits you will depend largely on your personal circumstances and tax status. Some landlords have found that using an LLC to purchase their Buy to Let properties very beneficial, since the tax rules surrounding property rentals changed in 2020.
What is a Special Purpose Vehicle?
A Special Purpose Vehicle, referred to as an SPV, is a specific Limited Liability company that is created to purchase Buy to Let properties.
It’s unusual for high street lenders to offer this form of Buy to Let lending, however it’s fairly commonly available through independent Mortgage Lenders, some of whom are willing to offer up to 85% Loan to Value lending to SPVs, reducing your deposit requirement to 15%.
How is Self-Employed Income Assessed to Purchase Buy to Let Properties?
Whether or not a mortgage is Buy to Let, there is a greater burden for a Self-Employed applicant to prove the stability of their income. Most lenders will be looking for at least two years of accounting history. The amount you can borrow, however, will still be based on the potential rental yield, which means that your income figure has less significance than it would for a Standard Residential Mortgage application.
What is Top Slicing?
Top slicing is a practice whereby some Mortgage Lenders allow business owners to use their personal dividends or a director’s loan from their own company in order to afford the deposit for their Buy to Let mortgage.
It’s very important to seek Tax and financial advice before you consider top slicing as an option.
What are the Tax Benefits/Implications?
When you invest in property rental there are a range of tax implication to be aware of:
- Income tax is payable on all rental income
- There is an additional 3% Stamp Duty requirement on each property that you own valued at £40,000+, aside from your home
- When you sell your rental properties, Capital Gains tax is due, as well as income tax, should you make a profit
- Benefits may apply if you’re a basic rate tax payer, such as tax relief on landlord related costs (letting fees,repairs etc)
How can a Vivid Mortgages Mortgage Broker help?
Our experienced Mortgage Advisers here at Vivid Mortgages have helped many applicants who are looking for Self-Employed Buy to Let mortgages find a product to suit them. Our access to a substantial section of the mortgage market means that we can find the most competitive products available to you across both the high street and independent offerings. Our goal is to help you obtain a mortgage that can both save you money and ensure that you maximise your investment potential.
Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.
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