Mortgages for (newly self-employed)

lisyloo

We (married couple) are looking at buying a small flat in London.
This would be a second home for use on week days.
We are aware that prices are eye wateringly high but don't believe prices will crash or even go down in London.
Unfortunately that's where work is at the moment and it's not commutable from our main home.
At the moment we are staying in serviced apartments but the affordable ones are broom cupboards and we think long term that buying makes sense even considering high prices.?

My query is that my partner has been self-employed for (only) 6 months (25 years previous experience in his line of work). He has a contract for further 6 months and there are informal indications that it will roll-on.

What are the current rules on residential mortgages?
In the past I've heard 1 year or 3 years books and I know lending is quite tight at the moment.
Would the previous 25 years experience count for anything or are there hard and fast rules

One thing we've been considering (but not got as far as professional advice) is buying the flat jointly as a BTL and renting it to my husband's business for his business use in the week. This means his company pays the costs before any corporation tax.
If we got a BTL mortgage then would that put us in an entirely different position?

Haven't spoken to a mortgage broker yet as it's difficult for both of us to phone from work, so would appreciate any comments on here before we get professional advice.

We are not considering selling our primary home and moving at this time as we currently have caring responsibilities for very elderly disabled parents in our home area.

Our assets are our home (about £500K), reasonable pensions (about £500K total) and enough savings for a 10% deposit for a small flat plus transactional costs.
I'm permanently employed PAYE and after sacrificing 30% of my salary into pension I'm paying basic rate tax.

Thanks for any advice.

ACG

Typically for self employed it would be 1-3 years and previous experience would only make a difference with the odd lender in order to reduce the 3 years down to 1-2. It would not remove the need for 1 years books.

However, you say he is on a contract... what does he do? What sort of contract is it? He may be able to get around the need for any books being a contractor.

Renting the property to his company to then rent to you still results in the same thing... you as owners can not reside in the property.

HappyMJ

To get a BTL mortgage you'll need more than a 10% deposit but you can borrow against your existing home to raise the deposit.

There are loans available to you you'll need to speak to a broker but before that I'd be speaking to an accountant to find the exact tax position regarding your proposal.

What would you do with the property once the contract finishes? Investing into property is not a short term thing you need to be looking at owning it for many years to show a decent profit.

lisyloo

It's an IT services contract.
He doesn't do IR35, he pays himself via dividends (yes we've had professional advice and have insurance against HMRC investigation).

So we can't rent to our own company to live in oursleves?
Is that an HMRC rule? or mortgage lender rule?

Getting more than 10% is not an issue (we have a flexible drawdown mortgage against the home - at a very low rate as it happens), however I was expecting that to be included in any lending decision. So for example if they say 3xsalary (or whatever) then I'd expect anything we drawdown from the first mortgage to be included (if they are now checking haircuts, takeaways, exercise classes, then I'm not expecting them to miss a mortgage).
I guess I should have mentioned the availability of cheap funds but it won't be enough to buy a flat - so we still need a mortgage.

Yes we realise it's long term.
Plan A would be contract lasts say 15 years (he'll be 63), so then retire and keep it on as a BTL for extra income in retirement.

Yes I agree owning is a long term thing.
Long term we think it will work out better than renting/hotels or serviced appartments,
I think we'll be fairly unhappy living in serviced appartments long term as we are now.
I could give you some examples, but having to walk in the shower, walk round the bed in the correct orientation because you can't turn round becomes really tiresome after a while. Sitting on the bed because there is nowhere else to sit is a fairly depressing way to live to be honest. Ok for the short term, but not for the long term.

HappyMJ

BTL mortgage calculations do not take into account your own income or expenses it's based solely on the rent. Generally you need to show £25k of personal income to be considered for a BTL mortgage but you can borrow any amount such as £1,000,000 if you wanted to...even on £25,000 of income as long as you have the equity and the rent can support the mortgage payments.

ACG

Its a mortgage lenders rule.
Im not going to try and explain it, all I will say is letting and then sub letting is not a way around their rules.

A lot of lenders are going to limit the LTV to between 75-85% on the new property.

ACG

I cant work out if you really are missing the point or trying to find a technicality.

The idea of a BTL is that it is bought and rented out for a tenant to live in.
It can not be owner occupied.

You as the owners could not occupy it.

A potential way around it would be for the ltd company to buy it and then rent it to you as the legal owner would be the ltd company - but you (or your broker) would need to look into this as I do not know whether or not it would work.

But I would also speak to an accountant before doing this.

A third option would be to buy a flat, rent it to someone else and you rent another flat - kind of using a BTL to offset your rental property - if that makes sense, but that is a lot of messing about.

lisyloo

I cant work out if you really are missing the point or trying to find a technicality.

I am certainly not trying to be difficult or do anything illegal although certainly want to be tax efficient. We certainly don't want to pay for accomodation on income we're paid 40% tax on if it's easily avoidable.
Some concept/assumption I have somewhere is clearly wrong.
The owners are individuals - say Mr&Mrs Smith.
The concept I had was we'd rent to the business - Smith Enterprises - not the individuals Mr&Mrs Smith.
Smith Enterprises then use it for their employees.
I'm sure there are cases where business rent flats for use by their employees.

Do you know if the business bought the flat, then what basis would that be on? would it still need minimum 1 years books?

I guess it's a bit complicated because we need a mortgage broker to advise on products but an accountant to advise on the tax side of things.

ACG

Good question, they most likely would yes - although you may be able to find an asset type lender who will secure the loan against the new property and your current residential property as a back up... these are typically more expensive but you may be able to offset the interest paid against the companies tax bill... one for an accountant.

They do, but I imagine they are either mortgage free or with permission from the lender. What you are suggesting is not what a BTL is intended for.

I think you need to sit down with a broker - possibly a commercial mortgage broker?

lisyloo

What you are suggesting is not what a BTL is intended for.

Thanks.
I understand now (sorry if I'm a bit slow) that what we want isn't covered by a standard BTL mortgage product and we need something more specialist.

amnblog

You need some advice from suitably experienced people - what you are suggesting has too many 'holes' to resolve it here.