Contractor Buy to Let Mortgages

Straightforward mortgage advice from expert brokers. Finding the perfect mortgage just for you without the jargon. 

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Straightforward mortgage advice from expert brokers. Finding the perfect mortgage just for you without the jargon. 

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Contractor Buy to Let Mortgages, Vantage Mortgages

Contractor Buy to Let Mortgages

Adam Messer is back, this time to talk about Buy to Let mortgages for contractors.

Can I get a Buy to Let mortgage as a contractor?

Probably, yes. Buy to Let mortgages are much less linked to your income than residential mortgages and they’re generally more flexible. Some lenders don’t even ask about income.

There’s always an option, because we could go to one of those to give ourselves the most choice. Most of the lenders that do ask about income will be fine with you as a contractor.

It’s best if you’ve been on a contract for six months with six months left. Or perhaps you’re some way into a 12-month contract – or longer. Some lenders might look at you more as a company director or or a self-employed person, and will look at your latest year’s income.

But because it’s a Buy to Let mortgage and it’s not so linked to your income, what you earn is less important. It’s all about whether the rent will cover the mortgage. They just like you to earn a certain amount to make sure you could cover the mortgage if your tenants don’t pay, or anything like that.

You could get a Buy to Let mortgage if you’re a contractor, depending on certain other criteria, which we’ll probably come on to in a minute.

Why should contractors invest in Buy to Let properties? What are the pros and cons?

For anyone looking at Buy to Let properties, not just contractors, there’s plenty of content on our site about Buy to Let. There are definitely pros and cons.

A lot of people online talk about how to get passive income – but is there any such thing as truly passive income? A Buy to Let property is probably as passive as it gets, because although you have to manage it, you don’t have to work daily to generate the income. You’re getting an income from your Buy to Let property as someone is paying you rent. You’re paying a mortgage, but you’ve got some profit there each month that comes in without you having to necessarily do anything on a daily basis.

Potentially you might be building up a portfolio for the future. In retirement, when you stop contracting, you’ll have some extra income.

There are some cons to consider. You’ve probably all heard horror stories about bad tenants who don’t pay, or trash the place and leave you to clear up and redecorate. It also takes a long time to get a tenant out if they don’t pay. So there are risks – it’s an investment, and investments don’t come without risks.

How will lenders assess my income for a Buy to Let mortgage as a contractor? What documents do I need to prepare in advance?

We’re going to need your current contract and maybe even your previous or next contract, depending on the timing. If you’ve only just started your current contract we might want your previous one. If you’re about to finish your current contract we might want the next one.

We also need all the usual bank statements and ID. It’s important to have a conversation with us as early as possible during your thought process so that we could plan ahead. Then you will know what you need and when, even if we’re not going to do something right now.

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Should I Buy to Let as an individual or through a limited company?

I can’t give accounting advice, so I can’t tell you what’s best. But broadly, if you’re a lower or or basic rate taxpayer, then having a Buy to Let or two in your personal name isn’t too much of an issue. At time of recording this in mid-June 2024, under the current government, you’ll get 20% tax relief on your mortgage payment.

You’re basically not going to pay tax on the mortgage interest – but only the interest. If you’re repaying your mortgage, the repayment element is seen as profit, not a cost. It’s just the interest that is a cost and that’s tax deductible at 20%.

Sometimes we see couples where person A earns over the higher rate tax threshold but person B doesn’t work or have much income. We’ll load any Buy to Let properties into person B’s name and use up their tax allowance with the rental income.

If you’re a higher rate taxpayer, it becomes less appealing. You still get that 20% tax relief on the mortgage interest, but you’re paying 40% tax on the profit and then the additional 20% tax on the mortgage payment as well. In this day and age, with interest rates as they are, you might not have anything left.

It may be more appealing to do it through a limited company, because that will pay corporation tax at a lower rate – currently 19% – up to a certain level of income.

If you don’t take the money out of the company, which you might not need to if you’re a higher rate taxpayer, then you don’t pay any personal tax on it at all. You could let that money accumulate and eventually perhaps buy more property. Or you could leave it there until you retire, and start taking money out of that business once your own income has gone down.

But this isn’t tax advice. I’m not an accountant, so speak to an accountant for proper, personalised advice.

How does tax work on a Buy to Let for a contractor?

You’ll be taxed at your current rate – it’s not necessarily linked to your contract income. Most contractors have a limited company these days, so it’s going to be linked to your salary and dividend income and your tax liability there.

If you’re already a higher rate taxpayer, you’ll pay higher rate tax on your rental income. Maybe you’ve got a partner that doesn’t pay tax – you could put the property in their name.

What we do a lot of the time is buy that property on a joint mortgage, but we could put 99% of the property in one name and 1% of the property in the higher rate taxpayer’s name. So 99% of the rent is the lower taxpayer’s income.

How does remortgaging a Buy to Let property work as a contractor?

Every mortgage process starts with assessing affordability, and Buy to Let is no different. We make sure you’ve got the minimum income for the lender, which is typically £25,000 a year.. Some lenders set no minimum income at all.

So it doesn’t matter what you do or what you earn. There’s always going to be a choice. For a contractor, we’re going to start with that contract income and see whether we could base your income on the contract or on your limited company, to give us more choice of lenders.

Do we need to go to a lender that’s not got a minimum income requirement? There’s a lot to consider, but it doesn’t necessarily have to be any more complicated than for anyone else just because you’re a contractor, specifically when it comes to Buy to Lets.

Can I get a Buy to Let mortgage as a contractor if I have bad credit?

As always, it depends how bad and how recent it is, but it needn’t stop you. There are Buy to Let lenders that will lend to people with adverse credit.

Again, because it’s about the rental income paying the mortgage, it’s not about you necessarily paying it from your income. So generally, it’s a little bit more flexible.

There are certainly lenders that will allow us to take a mortgage with bad credit on a Buy to Let basis, contractor or otherwise.

How do I apply for a Buy to Let mortgage as a contractor? How long is the process?

Your mortgage broker is going to know which lenders to go to and which to avoid. The process is no longer than for anyone else. Buy to Let is generally fairly straightforward, as long as we could demonstrate that you have the minimum income. Then, it’s all about the rent you’re going to get.

The rent needs to cover the mortgage by a certain margin, and that margin differs from lender to lender. Some are more generous than others, so we need to choose the right one. But the actual process itself is no shorter or longer than for anyone else.

We do your application, the lender assesses your income and does a valuation on the property. We get a mortgage offer and a solicitor does some legal work, whether you’re buying or remortgaging. And then that’s it, completion. You get the keys. You don’t move in, because it’s a Buy to Let, but you rent it out.



The information contained within was correct at the time of publication but is subject to change.

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