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Buy-to-let mortgages

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

The FCA does not regulate mortgages on commercial or investment buy-to-let properties.

What is a buy-to-let mortgage?

A buy-to-let mortgage is used to purchase a property you plan to rent out to tenants for profit.

Some key differences with a standard residential mortgage are:

Buy-to-let mortgage deposit - the deposit requirement is larger, with 20-40% the typical range, and most lenders asking for at least 25%.
Loan calculation - borrowing is largely based on the rental income (or rental yield) possible from letting out the property. Some lenders may consider personal income alongside this.
Property use - you're unable to live in a property with a buy-to-let mortgage as the owner - even during the renovation period.
Financial protection - buy-to-let mortgages are not typically regulated by the Financial Conduct Authority (FCA) - unless they're specific regulated products.

Buy-to-let mortgage rates

The best buy-to-let mortgage rates will be available to those with the lowest loan to value (LTV). Or in other words, the largest deposit compared to the property value.

Another important factor is what's currently available on the market. Buy-to-let mortgage rates available are currently higher than those seen in the previous decade -so those remortgaging are likely to find that even the best rates are less competitive than they're used to.

Below we've highlighted the average vs. the cheapest buy-to-let mortgage rates currently available on a two-year fixed-rate deal.

Lender type	Current average rate	Current lowest rate
Across all lenders	6.49%*	4.49%*
Big 6 lenders	6.39%*	6.03%*

*THESE BUY-TO-LET MORTGAGE DEALS MAY NOT BE AVAILABLE AT THE TIME YOU ARE READY TO SUBMIT AN APPLICATION

Date Updated 21 September 2023

However, many landlords prefer variable-rate mortgage options - such as a tracker mortgage - as these can be cheaper than a fixed-rate at the outset. Speaking to a whole-of-market mortgage broker can help you find the best buy-to-let mortgage rate for your circumstances.

“There has been more interest in variable rates from buy-to-let investors, who are looking at the difference in price compared to a fixed-rate deal. When they consider how much rates would have to increase to justify opting for a fixed-rate deal, some believe it will be more cost-effective to choose a variable-rate. However, this is dependent on the borrower’s attitude to risk - for many a fixed deal will give them the peace of mind they prefer.”
Ron Ogbue, Mortgage Expert at Mojo Mortgages

How does a buy-to-let mortgage work?

Buy-to-let mortgages are generally offered on an interest-only mortgage basis, so only the interest is repaid each month - the capital (amount borrowed) is repaid at the end of the mortgage term. It’s possible to find buy-to-let mortgage deals with capital repayment terms, but these are less common.

With an interest-only mortgage you’ll need a repayment plan in place to cover the final sum repayment. Most landlords sell the rental property, but you can also use savings or investments, depending on the preferences of the specific lender.

Who is eligible for a buy-to-let mortgage?

Buy-to-let (BTL) mortgage criteria are more substantial than for a residential mortgage, and while they vary between lenders they typically include:

Minimum age: Usually 21-25.
Maximum age: This can be a little more flexible in the buy-to-let market but some lenders have a maximum age on application and/or by which you should have repaid the loan.
Home ownership status: Fewer lenders offer btl mortgages for first-time buyers, but they are available.
Minimum income: Not all lenders have one, but you may need to earn £25,000 or more to apply for some BTL products.
Deposit: Lenders usually require at least 25% of the purchase price, with portfolio landlords often being asked for larger deposits of around 40%.
Rental income: Borrowing is based on your rental yield and most lenders want the property to bring in at least 125% of the cost of the BTL mortgage repayments. For portfolio landlords it can be up to 145%. Many will want an ARLA registered letting agent to confirm the rental potential.
Property type: Not all lenders accept applications for HMO (house of multiple occupancy) properties or mixed use rentals, so you're likely to need a more specialist lender if you plan to venture into anything other than single let property.
Credit history: As with other mortgages, the better your score, the greater choice of providers and, therefore, the better rates of interest available to you.

What type of buy-to-let mortgage do I need?

There are a few different products for buy-to-let, depending on the type of landlord you are:

Standard buy-to-let

Sometimes referred to as a vanilla buy-to-let, this is for existing landlords or those intending to one - usually to let out single family homes on a secure tenancy basis.

This can either be as an individual, or as a limited company buy-to-let, which most businesses now operate through a specific special purpose vehicle (SPV). An SPV is a company that exists exclusively to manage the purchase, sale and letting of property for profit.

Family or regulated buy-to-let

A regulated buy-to-let mortgage is similar to a consumer buy-to-let, but it's used specifically to let property to close family members. It's often referred to as a family buy-to-let for this reason.

The purpose is not to turn a profit, and may be used when a spare or inherited property not being used by the owner is rented at market-rate to a close relative.

Consumer buy-to-let

A consumer buy-to-let is aimed at people who have become landlords as a matter of circumstance, rather than as an intentional career choice. They are regulated by the financial conduct authority (FCA), as they're not considered to be exclusively for commercial gain.

HMO mortgage

Although still used by professional landlords, not all lenders offer buy-to-let mortgages for HMO (house of multiple occupancy) properties. Sometimes a HMO mortgage is, therefore, referred to separately. It is a standard BTL mortgage, however there are typically more regulations to be aware of.

Buy-to-let mortgage guides

The image shows a close up of a bay window on a Victorian terraced property and there is a green to-let sign hanging from just above the window. There are also a row of further terraced houses, some pavement and some trees in the background

How can you remortgage to buy-to-let

A row of UK terraced houses are shown, 3 of which have 'to let' signs posted in the front garden, to alert the fact that they are available for rental

Consumer Buy To Let Mortgages

A kitchen with 5 young adults doing various things, some related to food preparation, some simply reading or chatting. This is showing a student household with a shared common area

HMO Mortgages

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

You'll have the same costs to consider as you would with any other mortgage, however, some of them are higher, given the commercial nature of buy-to-let mortgages:

Mortgage fees - the usual costs of taking out a mortgage, such as the arrangement fee, valuation and legal fees apply - these are often higher for commercial properties.
Deposit - 25-40% of the property value.
Monthly repayment - The cost will vary based on the value of your property, how much you borrowed and your interest rate. Buy-to-let mortgage rates vary depending on whether you opt for a fixed or variable rate deal and the how risky the lender determines your borrowing (usually based on the LTV, but the type of property can also be a factor).
Final capital repayment - Most buy-to-let mortgages are interest-only, so it's important to consider how you'll repay the capital (amount borrowed) at the end of the term. Some landlords save an element of their rental income, whereas others may sell the property or remortgage to pay back the debt.
Additional stamp duty - If you already own another property - including your own home and other rental properties you'll need to pay a second home surcharge on any additional property. In England and Northern Ireland this is 3% on top of standard stamp duty, in Scotland 6% on top of LBTT and in Wales, 4% on top of LTT .

If you purchase a buy-to-let property as a first-time buyer, you won't be eligible for the stamp duty relief that first-time buyers buying a residential property have.
Use our stamp duty calculator to find out how much you need to pay.

What additional fees do I need to pay on a buy-to-let property?

Aside from the above, there are other costs involved in becoming a landlord and managing a rental portfolio that you may wish to consider:

Letting agent fees - Letting agents typically charge 10 to 20% of the rental income as a fee to manage the property, depending on the level of property management they provide.
Maintenance costs - Aside from generally keeping the property in good rentable condition, there are a number of regulations that you'll need to ensure you comply with in order to legally offer your property for let. For example, gas safety certification.
Income tax - is payable on any rental income. This is charged at the rate applicable to your overall income level. If you buy through a limited company you'll be charged corporation tax instead, which is generally lower.
Capital gains tax - When you sell a rental property capital gains tax is payable on any profits made. It’s worth speaking to a tax specialist beforehand.
Building and landlords’ insurance - Tenants are only responsible for contents insurance, so, as a landlord you need to pay buildings insurance to cover any structural issues with your property portfolio. You may also want to look into landlords' insurance, to protect your income during tenant-free periods, or if tenants refuse to pay.

Securing the best buy-to-let rate available to you can help maximise profit. In today's turbulent market, a broker is an excellent resource for landlords looking to make the most of their portfolio.”

Kellie Steed, Mortgage Content Writer

Buy-to-let FAQs

Most landlords opt for interest-only and use the rental income to invest or save, choosing to pay back the entire mortgage later. If you take this approach, you must make sure you have a payment plan to cover the whole mortgage back when the mortgage term ends, as the lender will want to be confident you will be able to repay the loan.

If you choose a repayment mortgage, which is usually used to buy a residential home to live in, you’ll own the property outright at the end of the deal, but your monthly repayments will be higher.

You will need to repay the loan capital (the full amount you borrowed) at the end of the mortgage term, as you will have only paid the interest. Lenders will expect you to have a plan in place for this when you take out the mortgage, and it often involves selling the rental property on.

It’s important to consider that if the cost of your property drops, then the resale income may not necessarily cover what you have borrowed. A back up plan is always a good idea, no matter how you plan to repay the capital.

There is no limit to the number of buy-to-let mortgages you can haven assuming you’re able to meet affordability for them all. That said, some lenders are reluctant to lend to portfolio landlords (those with more than 4 active buy-to-let mortgages) and it will get more difficult to borrow, the more properties you own.

There are specialist lenders that are able to accommodate portfolio landlords, however, and they are often happy to use existing investment properties in place of, or addition to the deposit, in order to secure your borrowing.

Yes, you can. It’s possible to remortgage a residential property onto a buy-to-let mortgage, so long as the lender feels that both yourself and the property meet the criteria of buy-to-let lending.

It’s also possible to use a let-to-buy arrangement, which is where you take out two mortgages simultaneously. This involves remortgaging your current home to a buy-to-let so that you can retain it as an investment property, whilst taking out a new mortgage to buy another residential property to live in.

No you can’t, residential mortgages are intended for the purchase of a home you are going to live in yourself. If you choose to disregard the terms of your mortgage and let out a property that has a residential mortgage without speaking to your lender, you’ll be committing ‘mortgage fraud’. In these circumstances, it’s possible that your lender will demand that the mortgage is repaid immediately, or repossess the property if you’re unable to do so.

If you would like to try out being a buy-to-let landlord with your residential home before committing to it for the long term, however, it’s possible to look at getting a consent to let on your residential mortgage. This will give you a short term (usually 6-12 months) allowance to let out your home before you need to remortgage onto a buy-to-let product.

It really depends on how you intend to offer your home on AirBnB, but you may not always need a buy-to-let mortgage. Some lenders will allow you to rent a certain element of your home, perhaps a room or two on an AirBnB basis with a standard residential mortgage, so long as you keep to their terms regarding the maximum number of days per year you can do this.

It’s very important to speak to your lender first, however, as with many residential mortgages, this will be breaching the terms and conditions.

Whether you need a holiday let mortgage or a buy-to-let mortgage will depend on:

If you intend to offer your property as a whole
How long you intend to let it out to any one individual and;
How many maximum days you will offer your property to let throughout the year

Loan size is typically based on the potential rental income from the property that you’re buying, so it depends on the property itself, rather than your personal income. That said, you'll still have an income assessment to ensure you'll be able to repay the loan when your property is vacant.

An ARLA registered letting agent should be able to advise you about local rental property prices in the area you’re looking to buy, or you could research this on property rental sites, such as Zoopla.

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