Buy-to-let and the self-employed

Self-employed borrowers can sometimes find it difficult to secure a residential mortgage, often because of fluctuating income, but specialist lenders can usually cater for them.

The story is a little different for buy-to-let investors as affordability is based on rental income rather than salary income. However, not all lenders are the same and some may want to see evidence of income for some or all of their landlord clients.

According to the English Private Landlord Survey’s most recent report (2021), there are around 2.7 million landlords in England and 13% of them are self-employed as a landlord. A further 15% of landlords say they are self-employed as they have other work and income. That equates to around 756,000 landlords who are self-employed in some capacity. Landlords with five or more properties are also more likely to be self-employed as a landlord (39%).

Landlords and income

At Landbay we have a mixed policy depending on the experience of the landlord. For landlords with more than 24 months experience we don’t need a specific income. What we are more interested in is a proven track record for maintaining mortgage payments regardless of income. Usually, this will be portfolio landlords (those with four or more properties) and rent might be their only income.

Landlords need to prove that the rent they receive can comfortably pay the mortgage each month and be able to cover things like maintenance and void periods. Therefore, the affordability assessment is based on the income cover ratio, which with us is either 125% or 140% depending on the applicant’s tax status.

Newer landlords

However, for first-time landlords and those with less than 24 months of experience, we require a minimum income of £25,000. This is not used for affordability purposes, it’s just a reference point for the client we’re lending to.

We will accept up to two applicants and the combined income must be at least £25,000. It doesn’t matter whether the borrower or borrowers are employed or self-employed as we do the usual checks on income. Our criteria for self-employed is standard and we require two years of accounts (SA302) and three months of bank statements.

We also don’t mind if clients hold their property in a limited company or are individual landlords.

Ultimately, our manual underwriting is flexible and we will try to accommodate requirements, even if there is complexity, as long as affordability is passed and criteria is met.

If you would like to understand more or discuss a case, please get in touch with your local BDM.