July Newsletter - How to purchase a property if you're self-employed

In this month's edition, we're offering our advice to anyone who is self-employed or running their own business wondering how best to purchase a property.

Elsewhere, we detail the Government has revealed its new reforms for planning and the Help to Buy scheme, research suggests that half of over-55s would downsize to fund a jetsetting lifestyle and we look at why Buy to Let still remains a great investment opportunity for landlords and vendors. 

Buy to Let remains a great investment opportunity

 

Since 2016, there have been several changes to the property market across the United Kingdom – predominantly to the lettings sector. Despite these alterations to taxation, stamp duty and bureaucracy around rental properties, most buy-to-let investors are still finding the market to be lucrative, with stable returns.

With a number of landlords departing the market when initial government changes took place in 2016, competition in the marketplace is greatly reduced and the professionalism of the sector has blossomed.

Chris Baguley, Commercial Director at buy-to-let lender Together, said: “As casual owners exit the sector, buy-to-let is becoming ever more professionalised, as individuals and companies adopt a more rigorous approach to acquiring the right properties in the right areas, and getting them ready to rent within a limited time frame on a tight budget. Perhaps most notably in the housing sector, the balance of today, there is less competition than there was before. Even if we don’t see the capital growth which has been evident over the past two decades, the income available from property investment can still be attractive compared to other asset classes.”

“Even if we don’t see the capital growth which has been evident over the past two decades, the income available from property investment can still be attractive compared to other asset classes.”

With rental incomes increasing – the Office of National Statistics announced this month that private rents rose 1.3% on an annual basis in May, increasing once more from April – the opportunities for buy-to-let investors are evident. Additionally, financing your properties has become easier with specific buy-to-let mortgages now offered by a plethora of lenders, who are fiercely competing with one another to keep their market share, providing investors with an opportunity to obtain extremely attractive rates.

A recent survey of more than 5,000 investors found that almost three-quarters of those surveyed considered buy-to-let to be the best, least volatile long-term investment. Indeed, some 83% of buy-to-let investors who were questioned stated that it was either unlikely or very unlikely that they would sell their property over the next year, with almost 60% going on to state that they had no intentions of selling for the next five years.

If you would like to discuss your rental investment options, then please feel free to contact us and we can advise you of the best local areas to invest your money in, as well as which property types and audiences are likely to provide you with the best possible rental yield.

Government reforms for planning and Help to Buy unveiled

Housing secretary James Brokenshire has recently unveiled his plans to introduce new quality controls on housebuilders, whilst also implementing new legislation to try to prevent developers from selling houses on a leasehold basis through Help-to-Buy.

“We have long recognised that we have a responsibility to confront unfairness in the leasehold market,” commented Brokenshire. “Last year we consulted on proposals including the leasehold house ban and ground rent reduction. Today I can confirm we will go ahead with our original plan to reduce ground rents on future leases to zero, as opposed to a cap of £10 per year. And we will legislate to ensure that in the future, save for the most exceptional circumstances, all new house will be sold on a freehold basis. We are committed to taking bold action to reform the sector and will be pressing ahead as soon as parliamentary time allows, helping us deliver our promise to make the home buying and selling process quicker, cheaper and easier.”

The housing secretary’s plans aim to help future homeowners in purchasing their first properties in a more timely and cheaper manner. These plans go hand-in-hand with the government’s pledge to deliver 300,000 new homes a year by 2020. According to the plans, if a buyer is sold a leasehold home then they will be able to get their freehold at no extra cost.

The Help-to-Buy scheme has been a flagship system that has been fundamental in first-time buyers entering the market since April 2013. From 2013 to 2018 the number of new-build property sales has increased from 61,537 to 104,245 – which can be largely apportioned to Help-to-Buy, with 38% of all new-build sales supported by the scheme.

 

How to purchase a property if you're self-employed

 

 

With 4.8 million people across the UK who are registered as self-employed, it may come as a surprise that many who run their own business or work freelance still view their chances of obtaining a mortgage as overly difficult. However, if you’re thinking of buying this year and you are self-employed, then there are a few things that you can do to maximise your chances of being approved for a mortgage.

 

Pre-2007, when the so-called 'credit crunch' hit the UK market, those who were self-employed and looking to obtain a mortgage would do so via a self-certification mortgage. However, these loans required very little paperwork in terms of proving income and led to an abuse of the system with applicants over-stating their income in order to gain a larger loan amount. Due to this practice, these mortgage variants were banned and those looking for a mortgage had to apply through the same routes as others who aren’t independently employed.

These days, if you are self-employed and looking for a mortgage, then the application process is the same as if you were employed externally, but there are some steps you can make to improve your chances:

An accountant will help you to get all of your finances together and will also be able to offer the best advice in terms of balancing the tax that you pay and the status of the business; some people who are self-employed pay themselves less in order to lessen their tax, but be advised that this may harm your mortgage application.

The structure of your business will also have a bearing upon the success of your mortgage application – so think about whether it will pay dividends in the long run to change from being a sole trader, to a partnership or limited company. Do keep in mind that the finance structure of your company will also be taken into account – for example, Director’s Loans (money that you have put into your business) will not be classed as income. The only considerations for a mortgage application are a declared salary and dividends paid out.

Being organised is, of course, tacit for anybody applying for a mortgage, but if you are self-employed then this becomes even more important. Depending on how long you have been self-employed for, you will have to be able to provide at least two years' worth of accounts. If you haven’t been in business for that long, then providing a strong previous employment history is an absolute must to prove that you are a safe place for a lender to give a mortgage to.

The fundamentals of mortgage application remain the same for whether you are self-employed or not. Maintain a strong credit history, and if you have blemishes on your record then work on improving these before you set about your application for a mortgage. Shopping around is also a must – different lenders will be able to offer you different mortgage structures, one of which may fit you best, so don’t be tempted to just say yes to your first mortgage approval. Finally, having a sizeable deposit will impact the rates which you end up paying on your mortgage, therefore waiting until you have a larger deposit to be able to put down on a property may be worthwhile in the long run.

Nearly half of over-55s would downsize to fund their jetsetting

 

With more people living longer and ageing with much better health than ever before, those aged 55 and over are playing a key part in the national economy. Recent research from SunLife has surveyed this age group and found that nearly half would sell up in order to fund a more jet-set lifestyle.

Recent data from the Office of National Statistics has shown that the proportion of those aged 65 and over will rise by 5% over the next thirty years, with greater economic contributions coming from this group as the years progress. For those currently 55 and over, SunLife questioned 1,000 homeowners with a big choice; if they had the option between staying in their family home but never holidaying away from the UK again, or downsizing and then using the cash for foreign holidays which would they choose?

Interestingly, nearly 50% said that they would downsize (44%) in order to enjoy a jet-set lifestyle in their later years – what this does suggest, however, is that 56% would not be prepared to sell their family home. The research has shown that as we get older, the more attached we become to our properties; with those in the 65-80 group voting overwhelmingly to keep their property at the expense of not holidaying again.

Of course, as we get older the inclination to travel could decline as we may be less mobile or find the appeal of travelling for long periods less attractive than in our younger years, which could explain the growing desire to stay-put as we age.

Simon Stanney, equity release director at SunLife said: “Our Home Sentiment research shows that foreign holidays are clearly very important to over 55s, with 44% prepared to downsize in order to be able to go on holiday abroad.

But equally, we can see people are really tied to their homes because even when money isn't an issue, many would choose to stay where they are. It is clearly a tough choice, but maybe it is one over 55s don’t have to make. Equity release allows homeowners over 55 to release some of the value from their home without having to move. The money released can be spent on anything they like – including holidays.”

As Stanney indicates, equity release is being utilised by many people and with attractive rates available in the lending marketplace, remortgaging is proving to be extremely popular.