For the self-employed, securing a mortgage used to be more complex than for those with steady employment in the eyes of lenders. The nature of variable income streams and irregular earnings made it harder to meet the stringent income requirements of many high-street lenders. However, the rise of self-employment has prompted lenders to evolve and accommodate this growing demographic, and now it is just as simple for a self-employed person to get a mortgage as someone in full-time regular employment.
Buy-to-let
Buy-to-let (BTL) mortgages cater to individuals who are investing in property to generate rental income, rather than for personal residence. These mortgages differ from regular residential mortgages, as the lender evaluates the viability of the investment property itself in terms of its rental income potential and capital appreciation.
For more information on mortgages for the self-employed, check out our article covering many of the frequently asked questions surrounding this topic.
How can self-employed individuals benefit from BTL mortgages?
There are a variety of ways that you can benefit from purchasing a buy-to-let property if you are self-employed, such as:
Income diversification
Property investment allows you to diversify your income streams beyond your primary business, potentially increasing your financial stability and also expanding your investment portfolio.
Property is a good investment
The value of property rising steadily over the past couple of decades makes it a great investment. Despite this, however, prices are currently falling at the moment, so monitoring the market closely is advisable. Due to the lack of housing available in the UK (caused by a number of social, economic, and political factors) and the population figures rising, the value of property in the UK seems like it will only rise, although with the current downturn in prices, this should be viewed as a long-term investment - unless you’re in the business of property flipping.
Eligibility criteria
While buy-to-let mortgages for the self-employed provide flexibility, lenders still have certain eligibility criteria:
Rental yield: Lenders typically require the potential rental income to cover a certain percentage of the mortgage payments.
Minimum income: Lenders may require a minimum income level from self-employed borrowers to ensure they can meet mortgage payments, even during periods of lower rental income.
Proof of income: Self-employed borrowers may need to provide additional documentation to verify their income, such as tax returns, business accounts, and bank statements.
Credit history: A good credit history is essential, showcasing the borrower's ability to manage debt responsibly.
Deposit: A substantial deposit, usually around 25% of the property's value, is often required for buy-to-let mortgages.
Choosing a buy-to-let property
When deciding to purchase a buy-to-let property, there are a variety of considerations to be made to ensure that you are making the right decision.
Analyse the finances
If your expenditures exceed your rental income, it won't be a wise investment. Carefully plan out your budget. Make sure to account for insurance, agency fees, purchase costs, and any other potential expenses. You should also have a financial cushion in case your property remains unoccupied for a prolonged period of time.
Research tenants
Who do you want to rent to specifically? Families, young professionals, or students? Consider the sort of property they would choose. Additionally, you should speak with your mortgage provider, since they may have restrictions on the number of tenants and the type of residence.
The quality of the property
One of the key factors you should consider when looking at properties is how easily they can be maintained. As this can be an expensive aspect of a landlord’s job, the ease of maintenance to the property is an important factor. Important factors regarding maintainability include the age of the property, the location, and the quality of the land the property is on.
Investing in property
Buy-to-let mortgages provide a promising avenue for self-employed individuals to invest in the UK's dynamic property market. While the challenges of variable income remain, lenders are adapting to the changing landscape, offering more tailored solutions to accommodate the self-employed.
If you are self-employed and are interested in a buy-to-let mortgage, speak to one of our expert advisers today. They can guide you through the process to find you the right deal for your circumstances.
Important information
There is no guarantee that it will be possible to arrange continuous letting of the property, nor that rental income will be sufficient to meet the cost of the mortgage.
Your property may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.
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