A buy-to-let mortgage is a loan specifically for purchasing a property you intend to rent out. Unlike residential mortgages, they typically require a minimum 25% deposit and are assessed based on expected rental income rather than your personal salary alone.
What Is a Buy-to-Let Mortgage?
A buy-to-let mortgage is designed for properties you intend to rent out rather than live in. They work differently from residential mortgages in several key ways — higher deposits, different affordability tests, and typically higher interest rates.
In the UK, buy-to-let remains one of the most popular forms of property investment, despite changes to tax relief and stamp duty surcharges introduced in recent years.
Deposit Requirements
The minimum deposit for most buy-to-let mortgages is 25% of the property value, compared to 5-10% for residential mortgages. This means for a £200,000 property, you'd typically need at least £50,000. See our deposit guide for strategies to build your deposit.
However, putting down a larger deposit (35-40%) significantly improves the rates available to you. The difference between 25% and 40% LTV can mean savings of 0.5-1% on your interest rate.
How Lenders Assess Affordability
Unlike residential mortgages which focus on your income, buy-to-let affordability is primarily based on expected rental income. Lenders use a rental coverage ratio (ICR) — most require rent to cover 125-145% of the mortgage payment.
Lenders also "stress test" at a higher rate (typically 5.5%) to ensure you can still afford payments if rates rise. Some lenders also require a minimum personal income of £25,000.
Tax Implications for Landlords
Since April 2020, landlords can no longer deduct mortgage interest from rental income before calculating tax. Instead, you receive a 20% tax credit on mortgage interest. This means higher-rate taxpayers pay more tax than before.
You'll also pay an additional 3% stamp duty surcharge on buy-to-let purchases, and Capital Gains Tax when you sell (at 18% for basic-rate taxpayers and 24% for higher-rate).
Portfolio Landlords
If you own four or more mortgaged buy-to-let properties, you're classified as a "portfolio landlord." This triggers additional underwriting requirements — lenders will assess your entire portfolio, not just the individual property.
A specialist mortgage broker can help portfolio landlords find lenders with experience in this area, as many high-street lenders have restrictive policies.
Buying Through a Limited Company
Many landlords now purchase buy-to-let properties through a limited company (SPV) to benefit from more favourable tax treatment. Company structures can still deduct mortgage interest as a business expense, and Corporation Tax (currently 25%) may be lower than personal income tax rates.
However, limited company mortgages often come with slightly higher rates. We can help you weigh up the financial benefit based on your specific circumstances — get in touch for a free consultation.
Frequently Asked Questions
- How much deposit do I need for a buy-to-let mortgage?
- Most lenders require a minimum 25% deposit for buy-to-let mortgages, though some accept 20%. Higher deposits (40%+) unlock significantly better interest rates.
- Can I get a buy-to-let mortgage as a first-time buyer?
- Yes, though options are more limited. Some specialist lenders offer buy-to-let mortgages to first-time buyers, particularly if you have a strong income and deposit.
- How do lenders calculate buy-to-let affordability?
- Lenders use rental coverage ratios, typically requiring rent to cover 125-145% of the mortgage payment at a stress-tested rate of around 5.5%.
- Should I buy a BTL property through a limited company?
- It depends on your tax position. Limited company structures can deduct mortgage interest as a business expense and pay Corporation Tax (25%) rather than personal income tax. A tax advisor can help you decide.
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