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A Guide To Buy To Let Mortgage For The Self Employed
Buy-to-let mortgages are designed for those who want to invest in a property to rent it out. However, getting a mortgage when you're self-employed can be more challenging.
Understanding the eligibility requirements, and working with specialist lenders will help you secure a mortgage to suit your needs. Find out more by reading below…
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- Take Our S.M.A.R.T Quiz & Find Out Your Potential Mortgage Savings
- We've Helped 20,000+ UK Homeowners
Key Takeaways
- Self-employed people can get a buy-to-let mortgage if they provide additional documentation that proves their income.
- Specialist lenders may be better suited for self-employed individuals with low profits or income tied up in their business.
- The eligibility for a buy to let mortgage is determined by factors like income, deposit and affordability.
What are Buy to Let Mortgages?
A buy-to let mortgage is designed specifically for those who intend to rent out their property.
It is a secured loan against a property you plan to rent. When deciding whether to lend money, the mortgage lender will consider the rental income that the property could generate.
The cost of a buy to let mortgage is usually higher than a residential mortgage. Buy-to-let loans are more expensive because they pose a greater risk to lenders. They rely on rental incomes to pay the mortgage.
Buy-to-let mortgages are typically interest-only mortgages. You will only be paying the interest each month and not the principal. You will have to pay the entire amount of your mortgage in one lump sum at the end of its term.
Before you take out a mortgage for buy-to let, there are some things that you should consider. You will have to be able cover the mortgage payments if you leave your property empty for a period of time. It is also important to consider any extra costs that come with being a landowner, like maintenance and repairs.
Buy-to-let mortgages are a good way to invest in real estate for landlords who work on their own. It’s vital to research the mortgage and understand all costs and risks before you take it out.
Eligibility for Self-Employed
You must meet certain criteria if you are self-employed, and you want to invest in buy-to let property. There are different requirements depending on which lender you choose, but some guidelines apply in most cases.
Lenders will usually ask for two years’ worth of account statements to prove your income. It is important to show that you can afford your mortgage and have a steady income. You’ll be required to submit your last two years’ self-assessment returns if you are a sole proprietor. If you are a limited company you will need to submit your company tax returns and accounts.
Your credit history will be considered by lenders in addition to your account to determine your creditworthiness. Your credit score is included, as are any outstanding debts and missed payments. A good credit score will increase your chances of getting a mortgage.
Lenders will also consider the amount of money you are willing to deposit. The larger your deposit, the better. It reduces the risk for the lender and shows your commitment to the investment.
Some lenders will also ask for a personal guarantee if you are a director of a limited company. You will be held personally responsible for mortgage payments in the event that the company fails to pay.
In general, self-employment shouldn’t prevent you from getting a buy to let mortgage. It’s vital to be ready and to have all of the required documentation and information available to give to the lender. A mortgage broker that specializes in self-employed loans can be very helpful to find the best lender and product.
Deposit and Affordability
The deposit is a key factor to consider when applying for a buy to let mortgage as a self employed person. Lenders will generally require a higher deposit for a residential mortgage than a buy to let mortgage. Buy-to-let loans are more risky due to fluctuations in rental income and void periods.
The deposit for a buy to let mortgage will vary depending on your lender and circumstances. As a rule of thumb, you should expect to pay a minimum of 25% of the value of the property as a deposit.
Lenders will consider your affordability in addition to your deposit when assessing your application for a Buy-to-Let mortgage. They will examine your income and expenses to see if you can afford monthly mortgage payments.
Your income can fluctuate month-to-month, making it difficult to prove affordability. There are some lenders that offer buy-to-let loans for self-employed people. They will assess your income in a flexible manner.
Lenders will consider the rental yield potential of the property when assessing your affordability. Rental yield is the annual rent that you can expect as a percent of the value of your property. Lenders will generally require that the rental yield is at least 125% the monthly mortgage payments.
Along with the deposit and affordability of the property, you should also consider how much equity you could build in it over time. As the value of the property increases and the mortgage balance falls, you’ll build equity that can be used for other property investments or projects.
Specialist Lenders
You may have difficulty getting a buy to let mortgage if you are self employed and want one. Specialist lenders will offer you more flexible options to suit your individual circumstances. These lenders are aware that self-employed people may have different income sources and not receive a regular wage.
Financial institutions known as specialist lenders focus their lending on specific groups of borrowers. These lenders have a thorough understanding of the self-employed and can provide tailored solutions. These lenders will often be more willing to accept riskier borrowers, and they offer rates that are competitive. This can save you a lot of money over time.
Working with a specialist lender has many benefits, including:
Flexible eligibility criteria Specialist lenders are aware that individuals who work for themselves may not earn a steady income, and their earnings may fluctuate. They may take a holistic approach when assessing your affordability, taking into account factors like your credit history, your assets and your future income potential.
Specialised lenders have a smaller client base than traditional lenders. They can offer a more personal service, and spend the time necessary to understand your needs and circumstances.
Rates that are competitive: Specialized lenders offer rates that are more competitive than traditional lenders. This is especially true if you have good credit and can make a large deposit.
Application process is usually faster. Specialist lenders have an application process which can save time and effort. If you have a complicated financial situation, they may be more willing and able to accept your application.
Aldermore Bank is one of the many specialist lenders who offer buy-to let mortgages to self-employed people. Other options include Expert Mortgage Advisor Online Mortgage Advisor and The Mortgage Store. These lenders are experts in the buy-to let market and offer solutions tailored to your needs.
If you are self employed and searching for a buy to let mortgage, a specialist lender will offer you more options at competitive rates. These lenders are familiar with the needs of independent contractors and can provide tailored solutions.
FAQ’s
Answers to your most common questions.
What are the requirements for a self-employed individual to obtain a buy-to-let mortgage?
Self-employed people must prove their income to qualify for a Buy-to-Let mortgage. This is usually done by providing two or three years’ worth of tax returns or accounts. Lenders can also ask for proof of rental income such as a rental agreement or income statement. Lenders may also require a deposit equal to at least 25 percent of the value of the property.
How do I calculate how much I can borrow for a buy-to-let mortgage as a self-employed person?
Lenders will usually assess your rental income as well as your personal income to determine how much you are eligible for a buy-to let mortgage. Your credit score, value of the home, and deposit amount may be considered by lenders. To get an accurate estimate of your borrowing capacity, it’s best that you speak to a mortgage broker.
What is the best buy-to-let mortgage option for self-employed individuals?
It is important to consider your own circumstances when deciding on the best mortgage for buy-to let. Comparing different mortgage products and lenders is important in order to find the right option for you. Some lenders offer greater flexibility to self-employed borrowers. For example, they may accept one year’s worth of accounts rather than two or three.
Can a self-employed person qualify for a buy-to-let mortgage without two years of accounts?
Self-employed people can qualify for a mortgage for buy-to let without having two years’ worth of accounts. However, it could be more difficult. Some lenders will accept only one year’s worth of accounts while others require additional proof of income such as bank statements and rental income. You should speak to a mortgage broker to find out what options you have.
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