Help securing HMO bridging finance for buy to let landlords

If you are considering a buy to let property, you will no doubt be thinking about ways to maximise your rental income. In a recession, landlords are always looking for ways to maximise their properties to deliver the best possible returns. One way to achieve this is by purchasing an HMO, or house in multiple occupation.

Dividing a home into multiple individual rooms that can be rented to individual tenants is a great way to maximise your returns. We can help guide you through the process of identifying and securing funding to purchase this type of property using a buy-to-let mortgage.

The real money is in identifying potential properties, converting them to HMOs and then securing the necessary permits. However, this venture will require some capital upfront. This is where bridging finance can help. Although costly to secure, bridging finance makes sound financial sense in the long-term.

Bridging finance will be taken alongside the mortgage to purchase the property. You would then convert the property and remortgage after the required time has passed, typically 6 months. At this stage, you would pay back the bridging finance and remortgage the property at the new higher value. When you are thinking about the long-term strategy, this can be an effective way to maximise space in a buy to let.

To find out more about HMO properties and bridging finance, get in touch with Niche Mortgage Info today. We can guide you through the process and connect you with the brokers who will be able to find you the best possible deal.

Leasehold vs Freehold: What's the Difference?

When you are planning to buy your first property, you will quickly become aware of two words: leasehold vs freehold. These descriptors will often be added to the online listing so that you know the status of the property. Before purchasing a property, it’s important that you know if you are purchasing a leasehold or a freehold because your rights and responsibilities will change depending on this key status.

What is a leasehold?

With a leasehold, you own the property but not the land that it sits on. This means that you will also pay rent to the landowner for the duration of your lease. In essence, you own the lease to the land, so you are free to sell the property in the future.

Leasehold agreements can last years, decades or even centuries. Most flats are sold as leasehold properties because it would be complicated to split up the freehold. However, in some cases (particularly in houses that are converted into flats) the residents will own a share of the freehold, which is known as ‘share of freehold’.

What is a freehold?

With a freehold, you own the property and the land it is built on. Interestingly, you will also own the aerial rights up to 500m above your property and ground rights below your property. As you own the property and the land, you will be responsible for all repairs and maintenance.

Problems with leasehold

A common problem with leasehold properties that is only now coming to light is in the way leasehold contracts are managed. One estimate says that around 12,000 leaseholders are facing ground rent fees that double every 10 years. Some new build houses were even sold as freehold, but this leasehold clause was added to their contract.

In 2019, a pledge was signed by leading property developers and freeholders agreeing to abolish these extortionate terms. There is also an investigation underway to determine if these leaseholds were mis-sold. It isn’t yet clear if those responsible will face any consequences if it is determined that they mis-sold the leaseholds.

Should I buy a leasehold?

The presence of “leasehold” on a home listing shouldn’t be enough to put you off. Provided you check the fine print and make sure that the leasehold payments are and will continue to be affordable, you should have no issues with a leasehold property. And if you are purchasing a flat, you may have no choice but to opt for a leasehold.

Another thing to look out for is the length of the leasehold. Most leaseholds will last for around 99-125 years, but some will be as long as 999 years. Anything shorter than 80 years should be avoided as it can make it difficult to remortgage the property in the future.

Your leaseholder rights

As a leaseholder, you have additional rights which are not available to freeholders. For example, communal areas will need to be managed and maintained by the landowner. Buildings insurance will also have to be provided by the landowner, so this can lower your monthly expenses.

As a leaseholder, you also have additional rights for dealing with things like noisy neighbours. There should be clauses in the leaseholder contract that outlines how noise complaints or antisocial behaviour will be dealt with.

If you are unhappy with the way something has been handled by the landowner, there are steps you can take. The first would be to speak to other residents and see if they share your feelings. You could strengthen your case to the landowner if multiple residents complain about the same thing. If this does not help you to solve your issues with the landowner, you can try mediation and then apply to tribunal if you are unhappy with the outcome.

Buy to let mortgages for first time buyers (first time landlord BTL mortgage)

If you are thinking about getting on the property ladder, you might be tempted by the unconventional method of purchasing a buy to let property first. Perhaps you don’t want to be settled in one place but still want the security of owning your own property.

If you choose the area wisely, you could charge enough rent to cover the mortgage and then enjoy a property that is gradually increasing in value. But is this even achievable if you’ve never owned a property before?

In this article, we will look at how first time buyers can head down the buy to let mortgage route. You can read more about first time buyers and BTL mortgages here.

What is a buy to let (BTL) mortgage?

A buy to let mortgage is a mortgage against a property that you do not intend to live in. This type of mortgage is often intended for those who plan to let out their properties. The amount you can borrow is often linked to the amount of rental income you can expect to receive. In general, the rental payment will need to be 25-30% higher than the mortgage payments to be considered affordable.

Can I get a BTL mortgage as a first time buyer?

Many lenders will want you to have experience owning your own home before they will grant you a buy to let mortgage. However, some lenders will consider a buy to let mortgage for those who are also first time buyers.

Being a first time buyer doesn’t rule out the possibility of securing a buy to let mortgage. Instead, it simply reduces the number of lenders you can approach. You should be able to secure a buy to let mortgage if you satisfy the following criteria:

You want to invest in property
You understand the risks involved
You have a good credit rating
Your finances aren’t already too stretched with existing financial commitments
You earn more than £25,000 per year
You are under the age of 70
You have saved a significant deposit
You can afford the additional fees associated with a buy to let property

Is it easier to get a buy to let mortgage?

Some people think that a buy to let mortgage is easier to secure because it is often based on the rental income rather than being solely based on your personal income. In some ways, this is true, but lenders will also see a buy to let mortgage as higher risk than a residential mortgage. For this reason, it’s important to consider all of the factors before deciding if buy to let is right for you.

As a first time buyer, you will have access to schemes and funds to help you get on the property ladder. If you choose a buy to let mortgage, these schemes will not be available to you. Most people will not pay any stamp duty on their residential property as a first time buyer. However, if you choose a buy to let mortgage, you will have to pay stamp duty. It’s important to consider your options before you proceed.

How much deposit will I need?

Buy to let mortgages will require a larger deposit than a residential mortgage. As a rule, you should aim for at least 25% of the value of the property. Some lenders could ask for anywhere up to 60% of the value of the property.

The bigger deposit you have, the better rates you will be offered. If you want to increase your chances of being accepted, you should save as much as possible. Another alternative would be to set your sights on a less expensive property. However, you should keep in mind that this will command lower rental income, so it could end up being counterproductive.

Can I get a mortgage based on rental income?

While affordability calculations will factor into the lending decision, you shouldn’t rely on rental income alone. There will be other factors you need to consider that will not be covered by the rental income. You will need to pay for repairs and maintenance, landlord insurance, and you could have periods where the property isn’t tenanted. You should also factor in the possibility that you could have tenants but no rent.

In order to make sure the mortgage is affordable, lenders will want to see that you are covering at least 125-145% of the mortgage payment with rental income. This will help to cover any periods where the property is empty and also cover any unexpected costs.

Can I get a BTL mortgage if I have bad credit?

The short answer is yes. However, poor credit will limit your choices. Lenders will want to see that the mortgage is affordable, that you have a good history with money and that you have saved a significant deposit.

You can often let one of these factors slide a little, provided the other two are in good standing. Getting a buy to let mortgage as a first time buyer is a balancing act. While poor credit might not stand in the way for some people, it could be seen as a negative factor for others.

How can I improve my credit score before I submit my application?

If you are concerned that you credit score will hold you back, there are a few simple steps you can take to improve it. First, you will need to sign up to the three major credit referencing agencies so you can see where you stand.

You should also make sure you are on the electoral roll at your current address. This will help lenders to confirm your details and can prevent delays to your application.

Next, you should look at your spending habits and try to clear as much debt as possible. Switch all bills and financial commitments to direct debits so that you always pay everything on time.

And finally, close any accounts which you no longer use. A credit card with a large unused limit might make you look responsible, but this can actually make lenders nervous. If they were to agree to your mortgage, you could quickly run up a lot of debt and be unable to pay back your mortgage.

What documents do I need to get a buy to let mortgage?

To apply for your buy to let mortgage as a first time buyer, you will need the following documents:

Identification
Proof of address
Proof of income

Other documents may be requested based on your individual circumstances. Before applying for your buy to let mortgage as a first time buyer, you should speak to a specialist mortgage broker. They will be able to advise you on the best course of action. They will also be able to tell you which documents you are most likely going to have to provide. This can speed up the application process.

Can I live in my BTL property?

No. If you are purchasing a buy to let property, there are strict rules about who can live there. Lenders will often carry out checks to ensure that the borrower is not living at the property. This is considered mortgage fraud and it will breach the terms of your loan. In the worst case scenario, the lender could revoke the agreement and you could be asked to repay the entire sum in full. This would lead most people to default on their mortgage and they would lose their buy to let property.

Can I get a residential mortgage and then rent it out?

It is perfectly legal to rent out a home if you are a cash buyer or you have paid off the mortgage. If a property is still mortgaged, however, you have to be open and honest with the lender about who is living in the property. If you plan to live in your property for a short time and then rent it out, your mortgage provider may prevent you from doing this.

After a period of time, lenders may grant you with something known as “consent to let” or “permission to let” and this would allow you to rent out your property. This will usually only be at the end of your initial tie-in period. You may also be charged an administration fee to change the terms of your mortgage agreement.

If you aren’t sure if you want to live in the property, a better option could be to secure a residential mortgage as a first time buyer.

Can I switch from residential mortgage to buy to let?

This will all depend on your individual circumstances and your chosen lender. While some will allow you to change the terms of your agreement, if they decline, your only option would be to remortgage the property. Depending on your existing agreement, this could land you with large fees and penalties. An easier and cheaper option might be to wait out the terms of your agreement and then seek out permission to let from your lender.

If you’re ready to discuss your buy to let mortgage as a first time buyer, get in touch with Niche Mortgage Info today.

Using Rental Income to Qualify for a Mortgage

If you already have a portfolio of properties, you may be wondering about the possibility of using your rental income to secure a mortgage on another property. While it is possible to get a mortgage with rental income as your primary source of income, expect the bank to ask you to jump through a few additional hoops.

In this article, we will look at the circumstances that might lead you to use rental income to qualify for a mortgage. We will also share some top tips that will allow you to make the most of this opportunity and navigate the mortgage process with ease.

Can I qualify for a mortgage with rental income?

If you already own one property that is currently rented and you would like to secure a mortgage against another property, you may be able to use the rental income as a proof of income. In some cases, you may even be able to use potential future rental income to secure a mortgage. It all depends on the type of mortgage you are looking for and the requirements set out by the bank.

Can I get a residential mortgage?

If you already have a rental property and this is your main source of income, you may be able to use your rental income to secure a residential mortgage. A residential mortgage would only be granted if you intend to live in the property.

If you are still paying a mortgage on your existing rental property then it is unlikely that you would be able to get an additional residential mortgage using the rental income from your property. Banks are primarily concerned with affordability. If you are already paying one mortgage and this is your only source of income then they may see this as a red flag.

Can I get a buy to let mortgage?

The rules for a buy to let mortgage are quite different. As the buy to let mortgage is intended for landlords, some will allow you to use the future rental as proof of income. However, this isn’t always the case.

If you have existing rental properties, you may be able to use the rental income from these properties as proof of income. But this isn’t always as straightforward. Lenders need to limit their risk. And there is always the risk that your rental property could remain empty. This could lead you to default on your mortgage.

How do I prove rental income?

Banks often need more than just rental agreements and bank statements to prove that you have income from rental properties. Since most landlords are self employed, they will be treated like any other self employed individual. When you’re using rental income to qualify for mortgage payments, you should approach this as a business venture.

This means that lenders will want to see tax returns or SA302 forms as proof of income. Some will ask for SA302 forms for the past 3 years. Others might only ask for your income from the past year.

How much can I borrow?

Once you have passed the lender’s checks, they will use a standard affordability calculation to determine how much you can borrow. This will often be a multiple of your annual income. If you annual income varies, some might take the average over the last 3 years as your income. Others might take the lowest annual income from the last 3 years. This all varies depending on the lender.

As with all mortgage questions, the final decision will always be left with the lender. This means that you should shop around and speak to a few different lenders before making a final decision.

UK Buy to Let Hotspots

Owning a buy to let property can be a great investment for your future. If you purchase a home with a promising yield, you will not only make money from the monthly rental payments but you will also stand to profit if you decide to sell the home further down the line.

Buy to let mortgages are different to a normal residential mortgage. It’s important that you understand these differences before you head down this route. In fact, most residential mortgages will have rules against you renting out the property for a period after purchase. See this guide.

If you decide a buy to let property is right for you, you’ll also have to think about which area is best. While some areas are booming, you might struggle to find suitable tenants for your property. That’s why we’ve come up with this handy guide to the UK buy to let hotspots for 2019.

Where are the best places for buy to let?

According to data published by the website Totally Money, the following areas are the best places to consider. These were the best performing areas in the whole of the UK.

Nottingham
Liverpool
Manchester
Leeds
The North East

It’s no surprise that the North dominates this list. With investment flooding to the North of the country, people are finding that they can get a lot more for their money in the north. If you’re a buy to let landlord looking to expand your portfolio, these are some of the rental yields you can expect to see in the North.

Buy to let in Nottingham

According to the study, Nottingham topped the list with an impressive yield of 11.99% in the most sought after areas. If you’re looking to buy in Nottingham, consider the NG1 postcode which is incredibly popular with students. With such close proximity to Nottingham Trent University, you’ll have a steady flow of new tenants.

You should also consider the NG7 postcode, which offers an average rental yield of 8.89%.

Buy to let in Liverpool

Heading to the coast, Liverpool was another top performing city. A total of 6 Liverpool postcodes made the list, including L7 which covers the city centre, Edge Hill, Fairfield and Kensington areas. The average rental yield for these areas is an impressive 9.79%.

Other areas to consider include L1 and L2 which are both in the city centre and L6, which covers Anfield, City Centre, Everton, Fairfield, Kensington and Tuebrook.

Buy to let in Manchester

Best of luck finding property in the centre of town or in the trendy Ancoats area. Instead, look to the student-dense suburbs of M14. Here, you’ll find an average rental yield of 7.07%. You can also look to areas like M13 which is close to the University of Manchester and two hospitals.

Buy to let in Leeds

To grab yourself a great rental property in Leeds, head outside of the city centre to the leafy suburb of Headingley. The LS6 postcode is popular with families and students alike. Here, you’ll find an average yield of 7.43%.

Buy to let in the North East

The best postcodes to consider in the North East are all in the Newcastle region. Look to the NE1 postcode for the best rental yield in the North East. Being close to Newcastle’s two universities means that you could look to enjoy a yield of around 8.16% along with low property prices. You should also look at the NE6 postcode.

Is it worth looking at London?

The majority of the best rental yields can be found in the North, so does this mean that it’s time to ignore London and the South East? Absolutely not. While property prices might be higher, rental prices are also higher in the capital. Competition for rental property is also steep, so you shouldn’t expect to sit on an empty property for too long.

According to Totally Money, the best performing rental yield in London can be found in East Ham. This has an average yield of just 4.81%. While this might be lower than some of the locations in the North, you have to keep in mind the value of the property.

Capital appreciation is a big factor to consider when looking at buy to let property in London. Investors in London typically see increases in their property’s market value.

What are the best areas in London?

At the moment, the best areas for buy to let are in the areas around Dagenham, Barking and Romford. The closer you get to the centre of London and areas like Kensington, Westminster, Chelsea and Fulham, the less yield you can expect to command.

With fluctuating property prices and the looming threat of Brexit causing uncertainty, it has become increasingly difficult to predict. This is why many investors are moving their focus to areas outside of London where property is cheaper but rents remain steady.

How do I find out the average rental yield in an area?

Before purchasing a buy to let property, you should do your research to discover how much money you could stand to make. By working out the rental yield, this can help you to decide which area is more profitable.

The first place to start is to find out the average property prices and the average rental prices for your chosen area. You can search on sites like RightMove, Prime Location and Zoopla to get an idea of how much rent you can expect in each area. Gumtree will also have listings direct from private landlords.

Once you have the rental figure, divide it by the market value of the property and then multiply by 100. This will be your rental yield percentage. The higher the number, the better the value.

What is a good rental yield?

The higher the better, but in general, you should look for a rental yield of around 7-8%. Any less, and you could struggle to meet your month commitments. You not only have to make mortgage payments, but you will also be responsible for upkeep of the property, so it makes sense to make sure this is always covered.

A common mistake that people make is assuming that everywhere in a post code offers the same rental yield. Things like schools, transport links and nearby amenities can make a huge difference to your rental potential. People might be willing to pay more rent for a place that is near a tram stop than one that is near a bus stop, even if it's in the same post code. You can’t assume that all transport links are equal. The same goes for schools and amenities.

And rental yield isn’t the only factor you should consider. Look at the wider area and consider if the area is prospering or declining. If new businesses are moving to the area, there is a chance the value of the property will increase. If, however, businesses are closing down and residents are moving away, you could end up with a property that is worth less and that you cannot rent.

Can I always get a buy to let mortgage?

You won’t be the only one doing these calculations. Your mortgage provider will also want to see that your buy to let property is a good investment. There are also different rules for buy to let mortgages depending on where you are in the country. Some lenders will see some areas as higher risk than others, so it’s worth speaking to a specialist before you start your property search.

Lenders will look at wider factors including rising unemployment, slow wage growth, falling house prices and population decline. This can include buy to let properties in rural areas where there is less demand for property. In some cases, lenders will be reluctant to lend to you if you live far away from the property you are purchasing. This can be frustrating for landlords based in the South who want to make the most of the lucrative opportunities in the North. In this instance, speaking to a specialist mortgage broker will help you to navigate your options.

Where can I find advice?

If you aren’t sure if you will be accepted for a buy to let mortgage because of any of the reasons listed above, it’s always best to seek advice. We have access to a wide range or mortgage brokers, so we can point you in the right direction to help you find the answers you need.

When researching buy to let mortgages, make sure you have a good idea of the area you are looking in, the average rental price and changes to property values in the last five years. This will help to refine your search and ensure that your broker puts you in touch with the right lender for your needs.

Can I purchase a buy to let property abroad?

If you want to purchase a property overseas with the intention of letting it out, you are likely to need a specialist mortgage. However, it can get complicated to purchase a buy to let property overseas. Every country will have their own rules, and you may also have a language barrier to contend with.

If you are thinking about purchasing an overseas buy to let property, you have two main options. The first is an international mortgage, and the second is simply applying for the mortgage overseas.

The first is likely to be simpler as you will be dealing with a UK-based lender and they will be able to help you navigate the home-buying process. The second is likely to be more complicated, particularly if you don’t speak the language. However, it’s worth looking at both options. By giving yourself more choice, you might be able to secure a better deal on your buy to let mortgage overseas.

Next steps

Whether you are looking at one of the UK buy to let property hotspots, or setting your sights overseas, the first step is to seek the advice of a specialist mortgage advisor. Get in touch with Niche Mortgage Info today to find out how we can help you navigate the process with ease.

A guide to understanding landlord responsibilities

Before you let tenants into your property, there are a few steps you will need to take. It doesn’t matter if you made an investment decision to purchase a buy to let property, or if your decision was more accidental and you need to let out a recently purchased property, the rules are the same. Whatever your reasons for letting out a property, if you want to make sure everything is above board, there are a few rules and regulations you will need to follow.

The laws to protect landlords and tenants are very strict, and just as you wouldn’t want your tenant to be confused about what you expect of them, they wouldn’t want you to be confused about your responsibilities. If you establish a good relationship with your tenants from the start, you will be far less likely to run into trouble further down the line.

If you’re new to the world of landlords, or just want to make sure you’re on the right track, read on to discover the main responsibilities you hold as a landlord.

Draw up an inventory

While this isn’t a legal requirement, it makes sense to make sure you have one in place. Most estate agents will have their own processes for drawing up and inventory, but don’t assume that they will handle it. Always check that they have a process for creating an inventory, checking it with the new tenants and then keeping it safe until the end of the tenancy.

Your inventory should include the following, as a minimum:

Walls and ceilings
Paintwork or wallpaper
Carpets
Curtains or blinds
Appliances
Furniture
Fittings and fixtures (cupboards, lights etc)
Windows
Doors
Smoke alarms
Carbon monoxide detectors
Meter readings

When the tenant moves in, they will check the inventory against the condition of the property. If there are any disagreements, they can be noted on the inventory at the start of the tenancy and then the tenant won’t be blamed for the damage at the end.

Having an accurate inventory in place isn’t just to protect your tenants, it also ensures that you get your property back in a reasonable manner. It can also help to avoid disputes over the deposit.

Tenancy agreement

It doesn’t matter if the person staying in your home is a friend or even a friend of a friend, you should always have a tenancy agreement in place. Unless you are letting the person stay in your property for free and don’t expect them to pay any bills, then you should have a tenancy agreement.

The tenancy agreement is a contract between you and your tenant. Most tenancies in the UK are an Assured Shorthold Tenancy. Your tenancy agreement should include the following information:

The names of all people involved
The rental price for the property and how/when it should be paid
Information about how/when rent will be reviewed
The deposit amount and where it will be protected
What the deposit covers
The property address
Access information
The start and end dates of the tenancy
Expected obligations for landlord and tenant
Energy supplier information, who pays them and if the supplier can be changed
How to end the tenancy early (if possible)
Who is responsible for small repairs
If the property can be sublet or have lodgers

All clauses have to be fair and compliant with UK law. You can access sample contracts which can be modified to your needs on the Gov.uk website.

Protect the deposit

The deposit isn’t yours to keep. It must be held in a government-backed scheme for the duration of the tenancy. Failing to protect your tenant’s deposit, or failing to provide information about where the deposit is held can lead to legal action. Tenants can take landlords to court if a dispute arises.

Scotland and Northern Ireland have their own rules for deposits, so you should check with your local authority. If you are based in England or Wales, you will have 30 days from the date your receive the deposit to place it in a government scheme. At the end of the tenancy, you will have 10 days to return it, provided there are no disputes.

Make rent changes fair

You cannot just increase the rent amount without first checking with the tenant and ensuring that you are on the right side of the law. Any rent increases must be fair and in line with local averages. You also cannot increase rental amounts in the middle of a fixed term tenancy. It can only change at the end of a fixed term agreement.

You need to give at least one month’s notice of a rent increase.

Keep the property safe

You have a responsibility to ensure the property you are renting out is safe. As a minimum, you will need to ensure the following:

Ensure you have electrical safety certificates for all appliances provided to the tenant. This includes things like fridges, power showers and electric ovens.
All gas appliances must be checked every 12 months by a registered Gas Safe engineer. You are required to give the tenant a copy of the gas safety certificate within 28 days of moving into the property.
If you provide furniture, all furniture must comply with fire safety regulations.
Every floor in the property must have a working smoke alarm. You should also provide a carbon monoxide detector in every room with a gas appliance.
Check that escape routes are accessible.

Keep the property maintained

When you draw up your tenancy agreement, it’s important that you set out who is responsible for maintenance. For example, while you might be responsible for the pipes and drains in the property, you might want to let the tenant know that their responsibility is to ensure they do not flush anything which could cause a blockage.

In general, the landlord will be responsible for the following:

Structure and exterior
Sinks, baths, toilets and sanitary fittings
Pipes and drains
Heating
Hot water
Gas appliances, flues, ventilation
Electrical wiring

You should set out in the tenancy agreement if you want your tenant to be responsible for the following:

Keeping the property clean and tidy
Small maintenance tasks (changing light bulbs)
Fixing broken items
Garden maintenance

Ensure your property visits are legal and fair

Every now and then, you may need to visit your property to carry out checks or to make repairs. However, you have to remember that your tenant has a legal right to quiet enjoyment of their property. This means you can’t just show up unannounced.

By law, you have to give 24 hours notice before you visit. If you don’t do this, your tenant is well within their rights to refuse you entry and this can quickly sour a relationship and break the trust.

Instead, make sure that you always let your tenants know well in advance and make sure they confirm. You should also ensure that you visit at appropriate times. While it might be easier for you to fit in a visit first thing in the morning or late at night, this might be very difficult for a tenant to accommodate.

Get landlord insurance

This is another one that isn’t a legal requirement, but it could save you a headache if something goes wrong with your property. You can protect yourself against anything from missed rental payments to legal fees associated with settling disputes.

There are three main types of landlord insurance:

Landlord building insurance will cover the structure from things like fire or flood.
Landlords contents insurance will protect your furniture and fittings if you rent out a furnished property.
Landlord liability insurance will cover you if a tenant of their visitor is injured in the property.

Get your energy performance certificate

An energy performance certificate offers a grade value to show how energy efficient a property is. You are required by law to provide one for your rental property. This can help tenants to make a decision about whether a property is right for them, as it can give an indication of running costs. For this reason, it can be helpful to secure an energy performance certificate when you start looking for tenants. Once you have your EPC, it will last for 10 years. It will also offer recommendations for how you can make your property more efficient. Following these recommendations will be very attractive to some tenants and may allow you to increase your rental price as the tenant will save money on their bills.

Self-employed buy-to-let: what you need to know

Being self-employed can be very rewarding. You have the opportunity to set your own working hours and boost your earnings. This can lead to far more lifestyle and income flexibility than the majority of full-time employees.

For many freelancers, diversifying their income streams can be a good way to ensure a steadier income and get out of the feast and famine cycle. Becoming a landlord while self-employed is one way to ensure you always have a steady stream of income.

The availability of buy-to-let mortgages might be shrinking, but they are still a viable option and worth considering if you’d like to get on the property ladder and start earning passive income.

The rules for buy-to-let mortgages have changed a lot in recent years, but it is still possible to make a tidy profit from becoming a landlord. However, becoming a landlord when you are self-employed isn’t easy.

In many cases, company directors will have a harder time purchasing a buy-to-let property than their own employees. That said, it isn’t impossible, so if you’re serious about becoming a landlord, there are steps you can take to ensure your buy-to-let mortgage application is successful.

Lenders will often want self-employed individuals to jump through far more hoops than the average applicant. It’s important to remember that these extra steps are in place to protect you just as much as the lender. Lenders want to ensure they are being responsible and not lending to individuals who might not be able to afford the repayments in six-months time.

With the rise of the self-employed gig economy, more and more lenders are coming around to the idea that some applicants will have a self-employed work history. If you’re interested in becoming a landlord while self-employed, follow these simple steps… For self-employed mortgages this past post.

Get your records in order

Keeping accurate financial records is essential as a freelancer, but it becomes even more important when the time comes to apply for a mortgage. Any lender will want to see at least two year’s worth of financial records, so it’s best to prepare this before you make your application.

In addition to your financial records, lenders will also want to see some other important documents. You should be prepared to present the following in support of your application:

Company accounts for the past 2-3 years. This will vary depending on the lender, but most will want to see at least two year’s worth of accounts.
Bank statements showing regular income
SA302 statements for the past 2-3 years. These are statements from HMRC detailing your tax liability and, therefore, your income.
Evidence of your deposit
Photo ID and proof of address

Is a self-cert mortgage an option?

Self-cert mortgages were designed for borrowers with irregular income, such as the self-employed. This type of mortgage helped many contractors and freelancers to get on the property ladder. Lenders trusted mortgage applicants to accurately represent their income in their application.

Unfortunately, these were widely abused and led to many people applying for more than they could afford. Imagine if you had a strong start to your business but then the hype wore off and your profits dropped. If you applied for a mortgage based on the first few months of trading, you might soon find that you can’t keep up with repayments. For this reason, many lenders will either take the average profit for the past two-years.

This type of mortgage was banned in 2011 amid concerns that lenders were being irresponsible by not confirming income. Lenders must now carry out in-depth affordability checks. You can still apply for a self-cert mortgage through some European providers, but this would not be covered by the same protections as a UK mortgage. With Brexit looming on the horizon, it would be wise to consult with a mortgage provider before going down the self-cert route.

How much can I afford to borrow?

If you aren’t sure what a lender is likely to give you, it’s a good idea to speak with a mortgage advisor. They will be able to look at things like your credit report and your SA302 statements and arrive at a figure that is likely to be accepted by a lender.

Many people head straight to the banks and are disappointed to be turned down for a self-employed mortgage. It’s important to remember that some banks are more likely to lend to self-employed individuals than others. So, a rejection from one lender doesn't mean that you are ineligible for a mortgage. It just means that you might need to adjust the amount you are applying for or try a different lender.

A good mortgage advisor will be able to point you in the direction of the banks and lenders most likely to help self-employed individuals.

Buy-to-let mortgage restrictions

If you are planning to let your property, it’s important to ensure you have the right mortgage. A buy-to-let mortgage will typically be more expensive than a residential mortgage. This is because of the higher risk to the banks. Essentially, you are relying on the rental income to pay the mortgage, but this isn’t always guaranteed.

You will also need a larger deposit for a buy-to-let mortgage. This is typically around 25% of the property value. Some of the best deals require a 40% deposit. Often, the more deposit you can afford, the better rates you will be able to secure.

Things to consider

It’s always best to get your documents in order before applying for a buy-to-let mortgage. It can take up to two weeks for SA302 forms to arrive, so you don’t want this to delay the application process.
Some mortgage providers will require you to have your financial records prepared by a chartered accountant. Bear this in mind when selecting your accountant.
If you’re in full-time employment and thinking about going self-employed, think carefully before taking the plunge. Most mortgage providers require at least two full year’s of accounts before they will consider your application. If you’re thinking about going self-employed, it might be easier to stay in full-time employment until you have purchased your property and let it out. You can then use this financial freedom to make the switch to self-employment.
If you are a company director and you take a basic salary, this often isn’t enough to put you in the full-time employed category. You will still be classified as self-employed and will need to jump through the same hoops. It’s also important to find a lender that will include income from other sources such as dividends and retained profit.
Some lenders will have minimum income requirements for individuals and couples. If one half of the couple doesn’t meet the income requirement, it might be best for one party to apply for the buy-to-let mortgage on their own if they can afford it.
If you already own a property and are looking to expand your portfolio then you should always approach your existing lender first. It’s always easier to work with a lender if you have a pre-existing relationship and a track record of making payments on time.
If you have been in the habit of legally adjusting your income in order to reduce your tax liability, you will need to stop this. When applying for your buy-to-let mortgage, lenders will look at your tax liability as proof of your income so you will want this to be as high as possible, even if this means paying more tax.

A buy-to-let mortgage can be more expensive than a residential mortgage, so it’s important to ensure that you have chosen a property that will deliver a strong rental yield for years to come. It might be more difficult to get a buy-to-let mortgage when you are self-employed, but it isn’t impossible, you just need to know where to look.