Easier than you think

There are many myths abound about getting mortgages when you are self-employed – especially when looking at getting a mortgage on a buy-to-let basis, whether it forms part of the business portfolio or is to be used as a secondary investment and income.

The truth is that getting a self-employed buy-to-let mortgage is easier than most people understand.

How many years of accounts do I need to show for a buy-to-let mortgage?

For a long time, the hard and fast rule about self-employed mortgages is three-years of finalised accounts. This still applies to many high-street mortgage lenders, unwilling or unable to shift with the changing attitudes in the market. Two things, however, adjust this rule when considering getting a mortgage for a second, profit-making, property.

Understanding accounts

The reason traditional lenders ask for three years of self-employed tax returns is to see a stable income and lower level of risk. A simple request for these figures provides a reasonable picture of your income and can be used to derive affordability.

What it doesn’t do is consider the developing and changing landscape of a self-employed business. As a self-employed business grows, it might become prudent to develop into a limited company a year or two in to trading – to these hard-line rules, that would reset the accounting process and add more years of waiting. Or maybe you struggled through the first six months of your business before snagging an important client who provides a regular income to the business each month and will do for years to come. Even at the most basic level, your business grows and the meagre earnings of your first year have little relevance to your third!

In short – lenders making a decision based on three years of tax returns does little to accurately provide a picture of your true stability and worth. It’s better than a complete guess, but not as good as actually talking to you!

Many mortgage lenders that we work with at The Mortgage Hut have a more modern and flexible approach to understanding your business and the accounts. Consequently, some might be willing to look at a single year of accounts and just need to see a profit (even as small as £1!) – not everyone follows the outdated high-street rules.

The reason for a buy-to-let mortgage

The other thing mortgage lenders understand is that you are looking for a buy-to-let in order to make money. They are expecting that you will be renting out the property for the market value, which will usually be in excess of the mortgage repayments.

In this way, your personal history and income are less important than the ability for the property itself to make money.

More important here is your background in the property market and how much you know about being a landlord.

Do you have what it takes to profit from a buy-to-let mortgage? – Just how good a landlord are you?

If the lender believes you can turn the new property into a solid profit-making machine until the mortgage is paid off, then they may be willing to accept your mortgage application even if you are not making any other money.

As bizarre as it sounds, some lenders will be happy to give you a buy-to-let mortgage even if your self-employed business is failing on paper. What they are interested in is your ability to make your landlord venture work.

They could consider the following when deciding:
  • Do you have any other properties you successfully let out?
  • Have you a history of being a landlord?
  • Are current properties currently tenanted or, if not, undergoing profitable renovation?
  • Did previous properties increase in value above the market rate and sell for a profit?
Proving yourself as a landlord can bypass many of the other issues regarding a buy-to-let mortgage.

First time landlords – do you turn a profit?

If you have no history as a landlord, that doesn’t harm your application – after all, everyone starts somewhere. Here, however, lenders will want to see that your self-employed business has worth and you will have to show at least some profit. Many lenders are happy for that to be as small as a single pound, however, if you are not declaring a loss.

What is self cert? Is it relevant?

Self-certification is where, rather than prove your income and affordability to the lender, you simply sign to promise you can afford it and they give you a mortgage based on that promise.

A self cert mortgage was one of the traditional ways a self-employed person could get a mortgage without jumping through the complicated hoops of three-years accounting.

A core issue that was in part blamed for the credit crunch of 2007/08, self cert mortgages have been banned in the UK since 2011. It is possible to still get self cert mortgages through European lenders but doing so has some risk as you are no longer protected by UK laws and regulations.

Mortgage lenders who are willing to look at only a single year of accounts have been unfairly accused of being self-cert. This isn’t the case, as they do perform a full level of due diligence in checking your affordability. That said, it provides many of the benefits of the old self-cert system only with the added security that you know you have legitimately passed their criteria!

Buy to let deposits

When applying for a buy-to-let mortgage, you will need a higher level of deposit than when buying your home. Most buy-to-let mortgages will cap at an LTV ratio of 75% - meaning you will need to secure 25% as a deposit.

On a £360,000 property, this would mean a deposit of £90,000.

Raising that capital can be difficult, but because a buy-to-let mortgage is a profit-making investment, lenders are keen to see that you are a significant part of that investment too. Obviously, if your self-employed business is doing well, raising the capital will be easier than if you are struggling in your day-to-day life.

It is also possible to cover the deposit by taking a charge on your existing properties (maybe even the family home). Speak to an advisor if you want to take this course of action.

Getting advice and a self-employed buy-to-let mortgage with The Mortgage Hut

Finding a specialist mortgage requires specialists! Talk to us here at The Mortgage Hut and we’ll use our experience and expertise to find a lender that suits your circumstances. We work with a huge range of mortgage providers and will contact the lenders most likely to accept your level of business, accounting profile and property investment plans.

Our advisors are totally independent and will work with no bias, providing you with detailed advice that’s right for you and your business growth. With years of experience working in the self-employed buy-to-let market, we can find you the perfect deal.

Contact us with our online form or give us a call to speak to an advisor today, and you could be on the way to become a landlord of tomorrow!

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