A guide to buy-to-let mortgages if you are self-employed
It's easier than ever for self-employed applicants to get their hands on a buy-to-let mortgage.
Mortgage lenders tend to be stricter with self-employed applicants because their income is less of a guarantee.
However, many have relaxed their criteria when it comes to approving buy-to-let mortgage applications, meaning it’s easier than ever for the self-employed to build a portfolio of rental properties.
In the past, lenders wouldn’t consider any self-employed applicants that couldn’t show them three years’ worth of accounts. It will still benefit your application to provide this, but it is now also possible to apply without it.
Speak to a specialist lender
If you are struggling to get a mortgage via the traditional methods you could speak to a specialist lender. They can provide the expertise on a particular area of lending where you’re looking for assistance.
How to prepare a buy-to-let mortgage application when you’re self-employed
Self-employed applicants will have access to the same buy-to-let mortgage products as everyone else. To be eligible, it’s likely you’ll need to raise a deposit worth at least 25% of the property’s value.
A good credit score will benefit your application, as lenders will use this to check how reliable you are at repaying debts. Check your credit score here.
It will also be necessary to provide documentation including:
- Proof of ID
- Proof of address
- Recent bank statements
If you have financial accounts from previous tax years, this will support your application. Any accounts that have been certified by a professional accountant and submitted to HMRC will be accepted. Many landlords use SA302 forms, which are issued by HMRC after you submit a paper tax return.
Submitting a buy-to-let mortgage application with less than three years’ worth of accounts
An increasing amount of lenders will approve your buy-to-let mortgage application, even if you don’t have three years of accounts to hand.
In fact, some lenders are willing to approve a mortgage, even if you don’t have a high income.
They’re aware that experienced landlords are able to cover the interest of a buy-to-let mortgage by renting out their property at a profit.
If you can show you’ve successfully paid off buy-to-let mortgages in the past – and that your property is likely to attract profits worth 125% of your mortgage interest – that can be enough evidence for some lenders to approve your application.
If you’re not an experienced landlord and don’t have at least three years of accounts, it could prove difficult to be approved for a great buy-to-let mortgage deal.
There may be some specialists that will work with you, but it’s unlikely to be at a competitive rate.
How to improve your odds of being approved for a buy-to-let mortgage
A high income, booming property portfolio and several years of accounts will make it far easier to be approved for a buy-to-let mortgage.
Nevertheless, there are several other factors that will improve your chances, even without these attributes.
Here are some steps to take that will boost your odds of being accepted for a great mortgage deal.
- Choose a suitable property. Lenders will feel more comfortable securing mortgages against properties they consider easy to sell. They’re more picky when securing mortgages against certain types of properties, including high-rise flats, new-builds, homes above commercial properties or unusually-structured buildings. The lender will also consider how likely it is that you’ll be able to rent your chosen property at a 125% profit.
- The less you borrow, the better. It’s easier to be approved for a low loan-to-value mortgage. As such, you can boost your odds of getting a mortgage by raising a bigger deposit or bidding for a cheaper property.
- Reduce your outgoings. Lenders will check your recent bank statements to compare your income against your regular outgoings. If there’s a healthy gap between the two, you’ll be considered a safer bet for repaying your mortgage on time. Consider improving this gap by paying off your debts and haggling over the cost of your utility bills.
- Improve your credit score. Take steps to boost your credit score by making timely repayments on all debts and bills via direct debit. Consider using a credit-builder credit card to make small payments, then paying off your balance in full every month. Also, refrain from opening too many additional financial products in the months leading to your mortgage application. You’ll be credit-checked every time you do, which temporarily harms your credit score.
- Work with a professional mortgage adviser. These individuals have a specialist knowledge of the buy-to-let mortgage market and will be able to recommend the lenders most likely to approve someone in your position.
What about self-cert buy-to-let mortgages?
Self-cert mortgages were officially banned by the FCA a few years ago.
However, this new trend of lenders approving buy-to-let mortgages for landlords without a big income is self-certification in everything but name.
If you’re considering going down this route in order to be approved for a buy-to-let mortgage, take note of the dangers surrounding self-cert mortgages.
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