Buy to Let Mortgages

What is a Buy to Let mortgage and how does it differ from a regular mortgage?

A Buy to Let mortgage is a mortgage bought for the purpose of letting out or renting out property. It’s specifically designed for people purchasing a home with the intention of renting it to tenants.

The key difference between a Buy to Let mortgage and a standard residential mortgage is that one is to buy a home for living in, while a Buy to Let is for renting out. There are also different criteria that come into play when you’re looking at these types of mortgages.

What are the eligibility criteria for obtaining a Buy to Let mortgage?

When assessing a Buy to Let mortgage, lenders don’t look at your personal income. They look at what the property will make from rent. Perhaps your property will bring in £2,000 a month – that is what the lending is based on, rather than your actual income.

Another thing to look at is the deposit. You’re typically looking at higher deposits than on a residential mortgage. The minimum normally is between 20% to 25%, while residential mortgages have a minimum of 5% to 10%.

You also need to look at interest rates and fees, which are often higher on Buy to Let mortgages. Lender fees and solicitors’ costs also come into account when looking at Buy to Let mortgages.

Stamp duty is a factor as well. In terms of regulation, most Buy to Let mortgages are not regulated by the FCA unless it’s a consumer Buy to Let, where your family are living there.

How much deposit is usually required for a Buy to Let mortgage?

With most lenders it’s 25%. That’s the average in the market. Some specialist lenders are doing 20% now, which is quite good to see.

But if you’re looking for a more specialist Buy to Let, you would probably be looking at about 30% for those mortgages [information correct at time of recording in April 2025].

Can you explain the concept of rental coverage and how it affects Buy to Let mortgage applications?

This is something we often have to explain to our clients. Rental coverage refers to the rental income against the mortgage payments. Lenders use something called a stress test.

They ‘stress’ the amount of rental that you’re getting, to ensure that income is sufficient to cover the mortgage plus a certain percentage. The standard is between 120% and 165% – so that would cover 100% of the mortgage plus 20% to 65% on top.

Then they stress the rate as well, usually using a rate of 5.5% or higher. It can get quite convoluted, but essentially the question is, will the rent cover the mortgage plus a certain percentage?

Are there any specific fees associated with Buy to Let mortgages that borrowers should be aware of?

Definitely. Those fees can be quite high compared to residential mortgages and may be between £995 and £2,000.

Certain lenders do have incentives where they will give you lower rates with a fee at a percentage of the mortgage amount – typically 2% to 3%.

Usually with Buy to Let mortgages, you also pay for your valuation. That can vary depending on the property value. Brokers may also charge for arranging a Buy to Let mortgage. Some receive commission from the lenders, others charge up front.

Legal fees are also paid and range from roughly £500 to £1,500. Also, bear in mind that with any mortgage, if you are going to get a fixed rate deal there will be early repayment charges during that period of time.

Should I choose interest-only or repayments on a Buy to Let mortgage?

That’s down to personal preference. The most popular choice for landlords is to keep the payments as low as possible and maximise rental profit, with an interest-only mortgage.

Do bear in mind, though, with an interest-only mortgage you will owe the full loan at the end of your term. With a repayment mortgage, you gradually pay down the loan, but your monthly payments will be higher. Your monthly income won’t be as high with a repayment mortgage.

The choice really depends on your long term strategy. Some landlords plan to sell their property to pay off an interest only mortgage, while other landlords prefer to build on the equity with a repayment type.

What are the implications of recent tax changes on Buy to Let mortgages?

Tax changes in recent years have significantly impacted landlords. You can no longer deduct your mortgage interest rate from your rental income. There is also now a 3% surcharge on stamp duty on any additional property.

Capital gains tax needs to be taken into account when selling your Buy to Let property, too. You could pay from 18% to 24% on any capital gains made.

Are there any restrictions on using Buy to Let mortgage for properties in certain areas or for specific tenant types?

Yes, every lender has different restrictions to their Buy to Let properties. Some won’t lend on locations with certain postcodes. Others won’t lend on certain types of property – if it’s a high-rise building, a certain type of structure or construction method.

They may only lend to certain tenants, and may not lend on accommodation for students or Houses of Multiple Occupation (HMOs) where you might have five or six people living in one house. Some may not lend to limited companies.

So if there’s a property type you’re looking to buy, it does affect which lenders we will choose. There are definitely restrictions on Buy to Let mortgages.

Are there any government schemes or support available specifically for Buy to Let investors?

With Buy to Let mortgages, you won’t really see the government help you. There are no government schemes focused on Buy to Let – they are mainly for first time buyers and residential homeowners.

Some councils may offer landlords ways to improve energy efficiency in a property. But I don’t believe there are any government schemes to help you with a Buy to Let mortgage.

What else would you like to highlight before we come back with part two?

With a Buy to Let mortgage, I would always advise planning for rising interest rates, because the payments can be quite high. The rates may differ from residential deals. Always stress test your investment to ensure it remains profitable.

There are different types of Buy to Let mortgages. Most people buy in their personal name, but you can consider buying in a limited company, as this can be beneficial for tax planning.

Stay up to date with regulations and EPC rules, read rental licensing rules and understand landlord compliance. The laws are always changing, so keep up with developments within the Buy to Let market.

With a Buy to Let mortgage, always get specialist advice because it is an investment property and you need to maximise the return. If you’re looking to do interest-only, be aware of all the risks and factors that come with that.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.

THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.

For specialist tax advice, please refer to an accountant or tax specialist.