Can I Get A Buy-to-let Mortgage Without A Job?

Buy-to-let mortgages are loans that allow individuals to purchase a property to rent it out to tenants. 

Although traditionally lenders require borrowers to have a source of income when applying for a mortgage, some may wonder if they can get a BTL mortgage without a job. 

This informative article aims to explore this question by delving into the requirements and criteria that lenders use when considering BTL mortgage applications.

From analysing the borrower’s credit score and rental income potential to exploring alternative income streams – let us discuss how one can access a BTL mortgage without a job. 

Can I Get A Buy-To-Let Mortgage Without A Job?

Purchasing a BTL investment property outright can be costly, leading many to apply for a BTL mortgage. However, some may question whether they can qualify for this type of loan without a steady job. 

While certain lenders do not require a minimum income, other factors come into play during the application process. Hence, finding the appropriate lender is key to securing a BTL mortgage. 

Typically, buy to let lenders seek an annual income of £25,000 or more, though some may be more flexible and not require a minimum level of earned income. But, again, mortgage lenders adjust their criteria regularly in response to legislation and market conditions.

For the lender, their primary goal is to lend money to make a profit, part of this will be lending responsibly in order to ensure full repayment of the capital lent and the interest owed at the end of the mortgage term. 

Ultimately, it is not advisable for anyone to apply for a BTL mortgage without financial security. However, for example, several landlords have expanded their property portfolio over time and no longer have a job or own a business but can still access mortgage lenders. 

These lenders consider the rental income of their portfolio when evaluating additional borrowing for future purchases or completing re mortgages. 

As such, they may require a monthly rental income of 125-145% of the mortgage payment for the property being purchased or re mortgaged or the overall rental income of the BTL portfolio to be generating a rental surplus of these percentages. 

Importantly landlords must remember that they may experience gaps in tenants. This encourages them to set aside funds to cover monthly mortgage payments during periods without rental income.

In most cases it will always be more difficult for first time landlords or what could be considered inexperienced landlords to attain BTL mortgages without a source of earned income or a minimum earned income, as this brings into question the ability to then cover rental voids. 

Eligibility Criteria For Buy-To-Let Mortgage 

It is a common misconception that a residential mortgage can be used to purchase a rental property. This is not the case, you will require a BTL mortgage. 

Unlike residential mortgages, which are intended for owner-occupied properties, BTL mortgages are designed for investment properties that will be rented out. 

These loans are considered riskier because rental income is not guaranteed, and tenants are more likely to default on rent payments.

As a result, lenders usually require a larger deposit for BTL mortgages, typically around 25% of the property value. However, some lenders may require up to a 40% deposit for the best rates.

Moreover, arrangement fees for BTL mortgages are often higher than those for residential mortgages, sometimes up to 3.5% of the property value. 

1. Factors Influencing Monthly Payments

When seeking a BTL mortgage, deciding between an interest-only or a repayment mortgage is essential as this will affect the monthly amount owed. 

Choosing a variable, tracker, or fixed rate mortgage product also affects the nature of the monthly payments. With a fixed-rate mortgage, payments stay the same. 

However, fixed rates for mortgages may be higher and will not provide benefits if interest rates drop for example. 

After the fixed period ends, in most cases borrowers will be shifted to the standard variable rate of their provider, which is usually the most expensive rate offered by the lender. You can avoid this by securing a new product as soon as the fixed-rate deal ends if you so wish. 

Conversely, variable or tracker mortgages do not have fixed rates, so monthly payments could decrease if the benchmark in which they follow or are set against falls. However, if interest rates rise, monthly payments will increase. 

2. Size Of Loan

The amount of money you can borrow depends primarily on the rental income the property is likely to generate. 

Normally, lenders want the rental income to generate between 125% and 145% of the mortgage payment stressed at a certain interest rate chosen by the lender. 

We recommend researching similar properties in the area to gauge how much rent you will receive on the particular property you are looking to purchase.

Moreover, if you are wondering whether you have to own your residential home to be eligible for a BTL mortgage – that is not always required. 

While non-homeowners may have fewer options, they can still apply for this type of mortgage as some lenders do not strictly stipulate this piece of lending criteria. 

As with any loan application, your financial situation will be evaluated, and having a good credit rating and manageable debt will increase your chances of being approved. 

Age is also a consideration, as you must be at least 18 years old (with a lot of lenders this minimum age is higher), whereas usually the upper age limit is typically less restrictive.

Buy-To-Let Mortgage For Unemployed Individuals 

Some lenders specialise in providing buy-to-let mortgages for individuals who are not currently employed. 

Although interest rates are likely to be higher, and there will be a limited selection of mortgage products, it is still feasible if the rental property satisfies all other requirements. 

Lenders will primarily use a common sense approach to evaluate that your financial situation is in a good position to cover rental voids from non paying tenants. 

When seeking a BTL mortgage, most lenders will ask for evidence of your income, typically in the form of your three most recent payslips if you are employed or HMRC tax calculations and overviews if you are self-employed. 

While some may not necessitate any such proof, without one, prepare yourself for a reduced selection of mortgage products with more than likely higher interest rates.

How To Get A Buy-To-Let Mortgage Without A Job

To secure a BTL mortgage, the first essential requirement is sufficient capital. A deposit equal to 25% of the property’s total cost is recommended. 

This will not only increase the likelihood of approval but also provide access to a greater selection of mortgage lenders and products.  

Subsequently, it is best to approach a mortgage broker, preferably one with a reputation for creative problem-solving. 

Do not assume that you will be ineligible right away – discuss your circumstances with a reputable broker and consider their advice.

Remember – the process of obtaining a BTL mortgage is no rocket science and success is not guaranteed.

FAQs

1. How much tax do you pay on buy-to-let income in the UK?

According to the current income tax rates in the UK, you will have to pay a minimum of 20% tax on your buy-to-let income. That said, higher tax brackets may have to pay between 40 and 45%.

Disclaimer: When it comes to taxes, this is just general advice and not to be relied upon as fact. When it comes to tax everyone’s position and circumstances are different and the rules are changing all the time. Only by seeking advice of a qualified tax professional can you be certain you are complying with all the relevant tax rules & regulations.

2. How is buy-to-let mortgage different from consent-to-let?

A buy-to-let mortgage is designed for purchasing properties with the intention of letting them out.

On the other hand, consent-to-let is an agreement with a residential mortgage lender to temporarily rent out a property without switching to a buy-to-let mortgage. Once the “grace period” ends, you will have to switch.

If you’re thinking of buying a property through a limited company, it’s a good idea to talk to a tax advisor and a mortgage broker. 

A tax advisor can tell you how it could affect your taxes and suggest other ways that might work better for you. 

Whereas, a mortgage broker (advisor) can help you find companies that lend money to limited companies and give you advice on how to get the best deal. 

Talking to both of them will help you decide whether setting up the purchase in a LTD company would be an effective solution.

**A buy to let mortgage will be secured against your property.

Some types of buy to let mortgages are not regulated by the Financial Conduct Authority.

All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.