What are the features of a Buy to Let Mortgage?

Buy to Let mortgages are fairly unique for a number of reasons. Here are the main features:

• Buy to Let mortgage are usually Interest-only, although repayment versions can be found with some niche lenders
• Interest rates and fees are normally higher than for Standard Residential Mortgages
• You cannot live in a property yourself, once it has a Buy to Let mortgage on it
• Buy to Let mortgages are not regulated by the Financial Conduct Authority (unless you have bought the property solely for the purpose of renting it to a close family member)
• 25% deposit is required as a minimum in most cases
• The loan is based on the potential rental yield of the property, not your income however some lenders may require a minimum amount of income

There are also fairly strict criteria you will need to fulfil in order to qualify for a Buy to Let mortgage. There is some variation based on individual lenders’ specific criteria, but you will usually need to meet the following:

• Be a homeowner
• Earn £25,000 or more
• Have a strong credit score
• Some lenders will require that you are an experienced landlord

What things should you consider when Buying to Let if you are Self-Employed?

Being Self-Employed shouldn’t really warrant additional considerations than employed Buy to Let applicants would have. Lenders will expect a number of Buy to Let mortgage applicants to be Self-Employed, due to the nature of property investment. Many lenders are perfectly happy to consider Self-Employed applicants

As it’s likely your property purchase is a form of investment, you may consider how to maximise that investment, for example, researching which types of properties will attract the tenants you are hoping to host. Lenders will be looking for the rental yield (income from the property) to cover 125-145% of the mortgage repayments, so it’s worth looking at comparative local properties.

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

Since changes were made to the taxation of rental properties in 2020, some landlords have found it beneficial to purchase Buy to Let properties through a Limited Liability Company, rather than as an individual.

Whether or not this will benefit you depends on your personal circumstances and tax status, so it’s important to seek independent tax advice on this subject

What is an SPV?

An SPV or Special Purpose Vehicle is a type of Limited Liability company that is set up specifically to purchase Buy to Let Properties. High street lenders tend to shy away from this type of lending, but the good news is, many independent Mortgage Lenders will offer up to 85% Loan to Value lending to SPVs.

How is Self-Employed income assessed to purchase Buy to Let properties?

How your income is assessed will depend on the type of Self-Employed business you carry out, however, an average of your income over two to three years is usually used to establish your annual income. Again, how you prove your income will vary slightly based on how you work, but it’s likely that you will need the following for all Self-Employed work:

• Two to three years of accounts signed off by a qualified accountant
• SA302s for the same duration and potentially a tax overview from HMRC
• Business bank statements for Limited Company Directors

What is Top Slicing?

Mortgage Lenders sometimes allow you to use income should the rental not stack up to the requirements of the lender when there is a shortfall on the loan being offered.  Its a term that may be used more as lenders increase there stress test on how they assess how much rental they need to service the mortgage

What are the tax benefits/implications?

There are a number of tax implications to Buy to Let property ownership, such as:

• You are liable for income tax on rental income
• You will have to pay additional Stamp Duty on every property in addition to your own residential home, which is worth more than £40,000
• Capital gains tax and income tax will be due on the sale of any portfolio properties.

Basic rate taxpayers are often entitled to tax relief on their return for repairs, letting agent fees and council tax associates with your rental property.

How can Choice Finance help?

Here at Choice Finance, our experienced Mortgage Brokers have access to a broad spectrum of Buy to Let mortgages, which allows them to recommend the product that will help you maximise your investment. We can help Self-Employed applicants to prepare financially prior to their application for a Buy to Let mortgage, to ensure they have the best chance of securing a suitable mortgage deal.

Risk Warning

Most Buy-to-Let Mortgages are not regulated by the Financial Conduct Authority.