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SantanderNatWestBarclaysLloyds BankRoyal Bank of ScotlandTSBAccord MortgagesHSBCCoventry Building SocietyBankofIreland4IntermediariesSantanderNatWestBarclaysLloyds BankRoyal Bank of ScotlandTSBAccord MortgagesHSBCCoventry Building SocietyBankofIreland4Intermediaries
YOUR HOME/PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. The FCA does not regulate buy-to-let mortgages for commercial and investment properties.
Last updated
1 December 2023

What is a buy-to-let mortgage?

A buy-to-let mortgage is for the purchase of residential property that you intend to let out to tenants, rather than live in yourself. Sometimes referred to in the industry as a landlord or BTL mortgage, they are more costly and have larger deposit requirements than residential mortgages.

Standard buy-to-let mortgages are not typically regulated by the Financial Conduct Authority (FCA) as they're seen as business, rather than consumer products. There are exceptions if you’re buying a property exclusively to rent to family members, or you temporarily become an ‘accidental landlord’ - in which case you can use a consumer product known as a regulated buy-to-let mortgage.

How does a buy-to-let mortgage work?

The mortgage works in a very similar way, but the way the lenders assess applicants, and the repayment type is usually different to a standard residential mortgage.

Lenders base buy-to-let mortgage loans on the potential rental income (or rental yield) that the property you’re buying could bring in. This is unlike residential mortgages, which are based on your personal affordability. Usually lenders will still want you to have a personal income, but this will be less of a determining factor in the loan amount.

The vast majority of buy-to-lets are interest-only mortgages - where you only pay the interest each month, none of the capital (loan balance). It’s possible to get a repayment buy-to-let mortgage, but interest-only mortgages are usually preferred as the lower monthly payments keep business costs at a minimum.

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Am I eligible for a buy-to-let mortgage

While this varies depending on the lender, generally you must fit the following criteria to be eligible for a buy-to-let mortgage:

Age

You are over the age of 21

Borrowing history

You have a good credit history

Big deposit

You have a deposit of at least 25%, but some lenders may ask for as much as 40% deposit

Income

You're earning the minimum income requirement per year of £25,000

Rental income

Your monthly rental income will cover around 25-45% more than your mortgage repayments

How much can I borrow for a buy-to-let mortgage?

With a buy-to-let mortgage, lenders use your predicted potential rental income when deciding how much you can borrow. Usually they will be looking for your rental property to make a monthly income equal to 125-145% of your mortgage repayments.

They will also look at: 

  • Your personal income

  • Loan-to-value ratio (LTV) of the loan

  • Your personal (and business where applicable) credit file

  • How many mortgages you have in total and overall affordability


What deposit do I need for a buy-to-let mortgage?

You’ll typically need at least 25% deposit for buy-to-let mortgages, but it can be as much as 40%. It’s possible, yet fairly rare, to get a buy-to-let mortgage with a slightly lower deposit of around 20% with some specialist lenders.

As with any mortgage, the best buy to let mortgage rates will be available to those with the highest deposit.

What rental yield do I need for a buy-to-let mortgage?

The minimum rental yield (how much income your property brings in) lenders usually look for is around 125% of the interest payment. This can vary between lenders and is also likely to be higher (up to 145%) if your circumstances are considered more risky. For example, if you have bad credit, multiple buy-to-let properties or fall into a higher tax bracket.

You may be able to reduce some of the lenders’ risk if you take out landlord’s insurance to cover your mortgage payments for periods of property vacancy or non-paying tenants.

How much will my buy-to-let mortgage cost?

Aside from your mortgage payments, there are some other costs that you should consider when taking out a buy-to-let mortgage:

  • Application fees - usually higher for this type of mortgage

  • Legal fees - legal fees are also higher as this is considered a commercial purchase

  • Stamp duty - If you already own another property (including your own home) there will usually be a Stamp Duty surcharge when you buy any further properties. For properties over £40,000 the second home surcharge is 3% in England and Northern Ireland, in Scotland it's 6%, and in Wales you pay 4%. The surcharge rate is in addition to any standard Stamp Duty that applies depending on the price of the property. To find out more, use our Stamp Duty calculator.

Buy-to-let mortgage rates

Buy-to-let mortgage rates are usually higher than residential mortgage interest rates, as they are treated as a commercial investment product. When you compare buy to let mortgages, be sure to look at them alongside application fees to see which deal is the most competitive overall.

The best buy-to-let mortgage rates are typically available to those with:

  • The largest deposit

  • The best credit score

  • The lowest loan to value (LTV)

Buy-to-let remortgages

Once your initial mortgage deal has come to an end, you’ll usually be transferred onto your lender’s higher standard variable rate. Like with any other mortgage, you can often save money by remortgaging to a new deal with a different lender or switching to a new deal with your existing one (known as a product transfer).

Remortgaging also provides landlords with an opportunity to use the equity built up in their buy-to-let properties as a cash deposit to buy again, expanding their portfolio, or to renovate existing properties.

You don't need to be earning a big income to be able to afford buy-to-let mortgages. This means you could borrow more for an investment property than you would for your own home which can help you maximise your investment potential

Buy to let mortgages FAQs

What’s the difference between a buy-to-let mortgage and a residential mortgage?

There are a number of differences between a buy-to-let mortgage and a residential mortgage, which you take out for a home you're going to live in:

  • While residential mortgage lenders look at how much you earn and how much you can afford to pay back when deciding how much to lend to you, a buy-to-let mortgage provider mainly looks at how much you can rent the property out for when making that decision.

  • A buy-to-let mortgage deposit generally needs to be larger than a residential one.

  • The tax treatment is different because lenders and the government regard being a landlord as a business activity.

  • Most residential mortgages are repayment mortgages but buy-to-let mortgages tend to be interest-only.

Can I get an interest-only buy-to-let mortgage?

Most buy-to-let mortgages are interest-only loans. When you're thinking about getting a BTL property to rent out, you'll need to make sure the rental income covers the cost of your mortgage payments.

You should have a plan for how you'll pay off the capital amount that you borrowed to purchase the property at the end of the mortgage term. You may choose to do this by selling the property.

What happens at the end of my interest-only buy-to-let mortgage?

At the end of the buy-to-let mortgage term you can either pay off your buy-to-let loan or remortgage your buy-to-let property.

Can I live in a buy-to-let property?

This depends on the terms of your buy-to-let mortgage, but it is unlikely that your lender will allow it. Often, as a condition of your buy-to-let mortgage, the property must be let to tenants and not lived in by you. This is because a buy-to-let mortgage is designed to be paid for with rent income from tenants.

If you break the terms of your buy-to-let mortgage, your lender could ask you to repay the loan immediately.

How many buy-to-let mortgages can I have?

You can have multiple buy-to-let mortgages. Some lenders set a maximum of around two to five mortgages that you can take out with them, but there is no specific rule preventing you from taking out more.

Some lenders may also have restrictions on the number of BTL mortgages you can take out from other banks or building societies. Make sure to check the terms and conditions so you understand any limitations.

Can I change my residential mortgage to a buy-to-let mortgage?

If you would like to switch your mortgage to a buy-to-let deal, there are two options.

  • You can get consent to let this is when your lender gives you permission to rent out your property on your standard residential mortgage. You'll need to speak to your lender about whether this is possible, what the process is and whether any additional costs are involved.

  • You can remortgage to a buy-to-let mortgage. There are different requirements for BTL mortgages compared to standard residential mortgages so make sure you meet the eligibility requirements.

Should I set up a special purpose vehicle limited company for my buy-to-let properties?

Tax changes brought in in 2017 stopped individual landlords from deducting mortgage interest as a business cost, but limited companies are still able to make this deduction.

Instead of paying income tax on rental earnings, limited companies can also pay corporation tax on profits, at a rate of 19%. The owners then pay a reduced rate of tax on dividends.

Since 2017 there has been a huge increase in landlords setting up limited companies for their buy-to-let properties. Special purpose vehicles (SPVs) can be set up exclusively for this purpose, and some landlords will benefit from the tax advantages of owning property in this way.

Be sure to take personal tax and financial advice to fully understand your options and find out whether setting up an SPV would work for you.

Can I get a buy-to-let mortgage as a first-time buyer?

It'll be difficult for first-time buyers to get a buy-to-let mortgage since many lenders will only offer the mortgage to existing homeowners with landlord experience. But that's not to say it's impossible, lenders who do offer it might just view you as high-risk. You can speak to our expert mortgage broker Mojo for more advice, or take a look at our guide on first-time buyer mortgages.

About the author

Atousa Cunnell
Atousa is a Content Producer for money.co.uk, responsible for writing and editing a wide range of mortgage content that are helpful to the reader.

money.co.uk is not a mortgage intermediary and makes introductions to Mojo Mortgages to provide mortgage solutions.

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