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Buy to Let Mortgages Explained

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: June 20, 2022

Buy-to-let (BTL) mortgages can be a great way to invest in property, and if you’re interested in taking one out or simply finding out more about them, you’ve come to the right place.

Our bumper guide to buy-to-let mortgages explains exactly how these products work, what eligibility criteria to expect, the pros and cons of becoming a buy-to-let landlord, and more. Plus, in our FAQ section, we field the questions we hear most often about BTL mortgages.

What is a buy-to-let mortgage and how do they work?

A buy-to-let mortgage is a type of home loan for buying property that you intend to rent out to residential tenants for a profit. Most buy-to-let mortgages in the UK are interest-only, with the landlord paying the monthly interest using rental income.

Buy-to-let properties come in all shapes and sizes, from houses to apartments and everything in between. Unless you own a property outright, it is usually against your lender’s rules to rent it out without taking out a BTL mortgage.

How they’re different to residential mortgages

Besides the fact that the property’s owner is unable to be a permanent resident there, the main difference between a buy-to-let and a residential mortgage is the way affordability is assessed. With BTL, it’s all about the strength of the investment, with lenders calculating this based on rental potential. The projected rental income has to cover the mortgage payments, calculated at current and possible future interest rates.

Affordability for a residential mortgage, meanwhile, is based on the customer’s personal income. While some BTL lenders do factor personal income into their affordability calculations, the deciding factor is usually the potential rental income. Interest rates and deposit requirements can also be higher for buy-to-let mortgages.

Finally, the majority of buy-to-let mortgages are not regulated by the Financial Conduct Authority (FCA), unlike their residential counterparts.

Buy-to-let repayment mortgages

Most landlords choose interest-only buy-to-let mortgages to keep their overheads down and for tax-efficiency purposes, but it’s also possible to choose a capital repayment mortgage if you want to chip away at your debt each month. This means higher monthly payments, but you’d build equity and own the property outright by the end of the term.

See our guide to buy to let repayment mortgages for more information about these products and how they compare to interest-only BTL mortgages.

Restrictions landlords need to know about

Landlords cannot live in their buy-to-let properties without permission from their lender, and even if they grant it, this would likely mean switching to a different product type. Moreover, 2021 is the first full year where landlords cannot deduct mortgage expenses from their rental income. Instead, they’re entitled to a 20% tax credit on interest payments.

Other recent buy-to-let regulation changes you should know about include…

  • New electrical safety standards were brought in for landlords in the summer of 2020. You can read them in full on the UK Government’s website.
  • A new code of practise to help landlords with rent issues came in last year. It is available online in PDF format.
  • Leaseholders can now extend their lease by 990 years thanks to new reforms.
  • Tenant eviction bans are in place until March 2021 as part of the government’s measures to support renters through the coronavirus pandemic.

Did you know… You only have access to one third of the Buy-To-Let mortgages available unless you use a specialist broker! Get Started with an OMA-Expert to unlock the entire market.

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How much can I borrow?

The sky is pretty much the limit, as long as you can evidence that the mortgage debt is serviceable from the rental income your buy-to-let property will generate each month. BTL mortgage lenders will, however, only approve a loan amount if the forecast rental income exceeds the mortgage payments by a certain percentage, 25-30% is standard.

Although there are buy-to-let mortgage lenders with no strict cap on the maximum amount you could borrow, affordability assessments are still stringent and you’re unlikely to pass one without a rental income forecast from an ARLA-regulated letting agent.

Moreover, some lenders have minimum personal income requirements and won’t approve you for a buy-to-let mortgage unless you’re earning over a certain amount from other sources, regardless of whether your investment property is likely to be self-funding. Proven earnings of around £25,000 is quite a common figure.

Is a buy-to-let mortgage worth it?

Understanding the potential advantages and disadvantages of a buy-to-let mortgage will help you decide whether this type of investment is right for you. We’ve listed the benefits and drawbacks below, but a mortgage broker can go over them with you in more detail…


The advantages of taking out a buy-to-let mortgage are as follows…

  • Long-term investment gains: The right buy-to-let property can bring short-term gains in the form of rental income, but rental property also has the potential to be a sound investment in the long-term. This is because property often increases in value, so you might be able to make money through a sale or remortgage down the line.
  • The rental market is strong: Although the UK Government has vowed to ‘turn Generation Rent into Generation Buy’, the demand for high-quality rental accommodation remains high and many landlords are capitalising on this, especially in certain UK hotspots.
  • Tax benefits: Some of the running costs associated with buy-to-let properties can be reclaimed when you submit your Self-Assessment Tax Return to HMRC each year. These include interest on your mortgage repayments, letting agent fees, repair costs, council tax payments and other bills (if you’re footing them yourself).

Potential disadvantages

The potential disadvantages of a buy-to-let mortgage will by no means apply to all applicants and it may even be possible to avoid these pitfalls with the help of a broker.

They include…

  • Tenant-related risks: There will always be risks where tenants are concerned, with the possibility of rental void periods, renters falling into arrears or causing damage to the property among the main concerns. Many landlords opt for comprehensive insurance policies to safeguard themselves against these things.
  • Higher stamp duty: On the purchase of the property, stamp duty is charged at a higher rate for buy-to-let properties, with buyers having to fork out an extra 3% compared to residential purchases. This is something to factor into the overall cost if you’re considering other investments.
  • Long-term market uncertainty: Although there is strong demand for rental properties at the time of writing (February 2021), the longer-term impact of Brexit and the coronavirus pandemic on the market are uncertain.

Eligibility criteria

Buy-to-let mortgage lenders typically use the following eligibility criteria to assess whether they are willing to approve a BTL mortgage application…

Minimum deposit requirements

The typical loan to value (LTV) ratio for a buy-to-let mortgage is 75-80%, which means that most BTL lenders will ask you to put down a minimum of 20-25% of the property’s value as a mortgage deposit. That said, a smaller number of providers are known to approve customers with lower deposits of just 15%, under the right circumstances.

Generally speaking, the more deposit you’re able to put down, the better the interest rate you could potentially get. Deals where the lender is taking on a greater risk, due to factors such as bad credit, may call for a higher deposit from the customer.

If you already own property and hold enough equity in it, then it may be possible to release some of that capital and use it as a deposit for your buy-to-let mortgage.


As we mentioned in the Affordability section of this article, most buy-to-let mortgage lenders base affordability on the projected rental income, but some have minimum personal income requirements, too. The BTL mortgage providers which impose this restriction won’t usually lend to anyone who earns less than £25,000 from other sources.

There are, however, buy-to-let mortgage providers who lend to customers with no personal income and base agreements entirely on rental income. To find one of these lenders, your best bet is to apply through a buy-to-let mortgage broker who knows the market.

How to prove your income

You will need to provide your buy-to-let mortgage lender with a rental income projection by arranging a report from an ARLA-regulated letting agent. You can find an agent in your local area by carrying out an online search on the official ARLA website.

Some BTL mortgage providers also have minimum personal income requirements, and will likely request three months’ bank statements as proof of your earnings. If you’re a landlord looking to expand your property portfolio, most lenders will ask to see two years of your tax returns plus a copy/copies of your lease agreements as proof of existing rental income.

See our guide to proving income for a buy-to-let mortgage application for more information.

What if I have no proof of income?

Then you’ll need to find a buy-to-let mortgage lender with no minimum income requirements where personal earnings are concerned. These lenders are often flexible and base the agreement entirely on the property’s projected rental income.

So, you will still need to order a letting agent report to evidence the rental potential, and if it meets the lender’s affordability requirements, it may be possible to get a buy-to-let mortgage based on this alone, as long as you meet the rest of their eligibility criteria.

Here’s the caveat, though, buy-to-let mortgage lenders with no income requirements can be difficult to find if you go it alone. The help of a specialist mortgage broker who knows the market inside out and has deep relationships with the kind of niche lenders you’d need is highly recommended if you’re buying an investment property with no personal income.

Credit history

While it’s entirely possible to get a buy-to-let mortgage with some types of bad credit against your name, having adverse credit of any kind could limit the number of approachable lenders and the amount of products that you qualify for.

Whether you’re eligible and which lenders will approve you will likely depend on the age, severity and reason for your credit issues. You might also be asked for extra deposit to offset the risk. Customers with clean credit, meanwhile, usually qualify for more favourable rates.

Read more about bad credit buy-to-let mortgages in our standalone guide.

Other rules and requirements

  • Age: The number of approachable lenders and products you qualify for will be lower if you’re under 21 or over 75. There are, however, buy-to-let mortgage lenders who specialise in customers over 75 and will lend to borrowers older than this.
  • Property type: Your mortgage application might be straightforward if the property type you’re buying is classed as a ‘standard’ home. This would be a traditional house, flat or apartment made from bricks and mortar. Anything else might call for a lender who specialises in unique buildings or non-standard construction.
  • Landlord experience: Some buy-to-let mortgage lenders prefer customers with landlord experience, as evidence of a strong track record with rental properties will give them confidence that your plans are achievable. There are, however, a smaller number of BTL lenders who specialise in first-time landlords.

Homeownership: Many BTL mortgage lenders won’t lend to anyone who doesn’t have their own residential mortgage. Most will want you to have been a homeowner for at least six months, though some might accept less than that, and a handful offer buy-to-let mortgages for first-time buyers, usually with caveats attached.

Did you know… You only have access to one third of the Buy-To-Let mortgages available unless you use a specialist broker! Get Started with an OMA-Expert to unlock the entire market.

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Other costs and fees

All mortgages come with costs and fees, and there might even be extra ones you haven’t considered if you’re hoping to become a buy-to-let landlord. In addition to your standard mortgage and legal fees, there will also be ongoing costs to consider, including landlord insurance, letting agent fees and income tax on your rental earnings.

Typical buy-to-let mortgage costs

Broker fees

The amount you will pay depends on the complexity of the buy-to-let mortgage and the type of product you are taking out. Some brokers charge £0, others anywhere up to 4% of the loan amount for arranging the mortgage for you.

Lender application/ booking fees

Every lender deal is different. Some are fee-free and others charge non-refundable upfront fees, of, say £500, for example. This allows them to only take on applications from borrowers who are more committed to proceeding. Generally speaking, fees for a buy-to-let mortgage are higher than they are for residential.

Valuation fees

This is entirely dependent on the buy-to-let property’s value, type, location, and the BTL product you are taking – some mortgages products offer a free basic valuation report. You will usually pay more for homebuyer or full structural surveys.

Mortgage product fees

These are dependent on the product type & property value. Some lenders will charge you nothing, others a fixed fee of around £500 and others a percentage of the loan amount. For larger buy-to-let mortgages, it might work out most cost-effective to choose a product that has no fee or a fixed fee.

Mortgage exit fees

Again, these differ from lender to lender, and product to product. Also, if you’re tied into a buy-to-let mortgage and want to leave early, there may be additional costs associated with this, known as Early Repayment Charges (ERCs).

Legal costs

Solicitor fees & disbursements

Solicitor costs vary depending on their charging structure. Some charge fixed fees, others per hour, and some a percentage of the property (rarer nowadays). Occasionally, lenders will offer free legals as an incentive for buy-to-let borrowers to take their particular BTL mortgage deal.

Stamp duty

The rate can vary between 3% and 15% as buy-to-let landlords are liable to pay the surcharge. For exact figures on stamp duty as at today’s rates, head over to the UK Government’s website.

On-going costs

Property maintenance

Can range from zero to a hefty amount of money. This depends on the state of your property and any ongoing repairs.

Letting agent fees

Either a fixed fee or a percentage of your rental income. Common charges are 10% of the monthly rent (so £35pm charge on a £350pm rental).

Income tax

From £0-50% (Depends on your current income and rate of tax paid). For more info visit HMRC for help with buy-to-let tax.

Landlord insurance

The cost of landlord insurance can range dramatically depending on the location of your property, its size, the type of tenants you’re letting to and the type of policy you take out.

Typical policies landlords might need include, contents cover, rental protection insurance, public liability insurance, legal expense cover, malicious damage by tenants and portfolio insurance.

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Rental returns and yields

A rental return is the difference between the rental income your property generates and the amount of interest due on your mortgage each month, expressed as a percentage. For example, if your mortgage interest payments are £1,000 per month and your rental income is £1,100, the rental return on your buy-to-let property would be 110%.

Most lenders like to see a projected rental return of at least 125% before they’re willing to offer a BTL mortgage, and they will assess whether a property meets this requirement by carrying out a stress test. This basically involves crunching the numbers and comparing the rental income forecast you’ve provided with the mortgage rate you qualify for.

Rental yields, meanwhile, are the amount of cash your property generates, calculated as a percentage of its value, and broken down into net and gross values. To calculate your rental yield, simply divide its purchase price by the amount of yearly rent it brings in.

For example, if the purchase price is £100,000 and the rent is £200 per week, then the annual rent is £10,400 and your buy-to-let property yield is 10.4%.

Most experts will tell you to look for a property with a rental yield of 8% or more.

What documents will I need to apply?

The following documents are needed to get a buy-to-let mortgage…

  • Proof of income (usually the most recent three months payslips)
  • Mortgage statement for your existing property or properties
  • Proof of rental income (usually a report from an ARLA-regulated agent)
  • Proof of deposit (if you have a donor you also need to get this in writing from them)
  • Proof of any bonuses or commission (if applicable)
  • Proof of ID (passport/driving license)
  • Proof of address
  • Current or most recent P60
  • Your SA302 tax return forms (if you’re self-employed)

How to apply for a buy-to-let mortgage

Here’s how to begin a buy-to-let mortgage application in three easy steps…

  • Obtain a rental income projection for the property: This is usually done by instructing a report from an ARLA-registered letting agent. If you have personal income, it can help your cause if you’re able to evidence this too.
  • Check your credit reports: You should download and check all of your credit reports before you apply. This is important because it will give you the chance to challenge any errors, make sure they’re fully up to date and find out exactly what the mortgage lender and underwriter will see when they look into your credit history.
  • Speak to a mortgage broker: This isn’t essential, but it’s highly recommended, as a mortgage broker who specialises in buy-to-let can help you get the best deal, offer bespoke advice throughout and help you take care of your paperwork and potentially save you money in the long run.

An initial consultation with your buy-to-let mortgage broker will be free with no-obligation to continue, but if you do choose to proceed, they will guide you through the application process from here, and will start off by making sure you find the right lender.

From here, your broker might suggest applying for a buy-to-let mortgage in principle. This is an initial agreement with the lender, during which they will establish how much you can theoretically borrow and under what terms and conditions. Further credit checks and underwriting must take place before you can progress with a full application.

Some mortgage lenders skip the AIP stage and move straight to full application.

Speak to a specialist buy-to-let mortgage broker

Looking for advice or information about buy-to-let mortgages? A broker who specialises in rental property finance can answer all of your questions and help you achieve your goals.

But not all buy-to-let mortgage brokers are the same. Each have their own areas of expertise within this sub-category of mortgage lending, and if you want to get the best deal, you’ll need to speak to the right specialist for your needs and circumstances.

This is where we come in. We offer a free-broker matching service that will take your needs, circumstances and investment goals into account and pair you up with your ideal mortgage advisor. This might be somebody who specialises in portfolio landlords, first-time investors, people with bad credit. Whatever your circumstances, we’ll find an expert who can help.

Speaking to a buy-to-let mortgage specialist before you apply will boost your chances of finding the right lender, first time, and that could mean saving time and money. Call 0808 189 2301 or make an enquiry and we’ll set up a free, no-obligation chat with a broker today.


Why are buy to let mortgages unregulated?

Most buy-to-let mortgages are not regulated by the Financial Conduct Authority (FCA) because lenders in this sector need more flexibility to offer bespoke mortgages based on rental income. The lack of FCA regulation does not mean the market is full of shady deals and underhand practises. Lenders operate in line with their own code of ethics.

Furthermore, there are some regulated buy-to-let mortgages out there. They are usually offered in scenarios where the landlord is renting to a close relative, or where the property owner is classed as an ‘accidental landlord’, having inherited a buy-to-let property opportunity

They are known as consumer buy-to-let mortgages, and you can read more about them in our standalone guide through the link.

Why do you need a buy-to-let mortgage for renting?

Because renting out a property you don’t own outright without a buy-to-let mortgage will likely be a violation of your mortgage’s terms and conditions. If you’re caught, your mortgage lender could request that the full loan amount is paid in one go and you’ll end up with black marks on your credit file, jeopardising future applications for finance.

In the worst case scenario, you could be prosecuted for committing mortgage fraud.

Needless to say, you should always tell your lender if you’re planning to rent out your property as this might mean you need to switch to a different mortgage type to ensure this is legal. Failing to tell your lender could mean you end up committing mortgage fraud.

What is the best type of property to rent out?

There is no one-size-fits all answer here as there are many factors to consider, not least the property’s postcode and your investment preferences. That said, most experts will tell you to look at the property’s rental yield and capital gains, if you’re a long-term investor.

Zoopla has published data on property types and capital gains to show how each of the most common types appreciates in value over a period of five and 20 years…

Property type: Detached House
After 5 Years: 31.84%
After 20 Years: 245.49%

Property type: Semi-Detached House.
After 5 Years: 33.60%
After 20 years: 269.59%

Property type: Terraced House.
After 5 Years: 32.16%
After 20 years:281.87%

Property type: Flat/Apartment.
After 5 Years: 28.76%
After 20 years: 256.42%

How do I buy my first buy-to-let property?

If you need to apply for a buy-to-let mortgage to buy your first investment property, most experts will recommend that you wait until you’ve owned your first residential property for at least six months, as that will mean a wider pool of lenders to choose from.

If you’ve never owned property of any kind before, keep in mind that getting a BTL mortgage isn’t impossible, but you’ll likely need to use a broker to find a specialist lender.

For people who already own other types of property, a BTL mortgage might not be the only option. If you’ve been paying off a residential mortgage for a while, it may be possible to remortgage to release equity to put towards the purchase of your first buy-to-let.

Should I pay off my rental property or invest?

This is an impossible question to answer without taking a full picture of your needs and circumstances into account. It isn’t something you can find a simple answer to online. Major financial or investment decisions should not be made after a quick Google search. They should be made after taking professional advice from the right expert.

We can introduce you to a buy-to-let specialist who can go through all of your property investment options with you. If it’s general investment advice you need, we can match you with an independent final advisor through our sister website, Online Money Advisor.

Why do landlords use interest-only mortgages?

Because most landlords see buy to let as a long-term investment. The rent they charge their tenants can cover the interest payments with profit left over. With no capital repayments to think about, landlords’ overheads are lower if they take out an interest-only mortgage.

Can I get a buy-to-let mortgage if I earn less than £25k?

Yes. Although £25,000 is a standard minimum personal income requirement among buy-to-let lenders, a few might be happy to approve your mortgage application if you earn £20,000 and there are even BTL mortgage providers who will lend to someone with no personal income at all, basing affordability entirely on projected rental income.

Do I pay tax if I sell my buy-to-let property?

Yes. Landlords usually have to pay Capital Gains Tax (CGT) when they sell a buy-to-let property. This will be due if you sell your property for more than you paid for it, with lower stamp duty and agent and solicitor fees. For the 2020/21 tax year, the CGT rate on property for a basic-rate taxpayer is 18%. For higher and additional-rate taxpayers, the rate is 28%.

What happens if I get caught living in my buy to let?

This would breach the terms and conditions of a BTL mortgage and your lender could demand full payment of the debt in one go. This might cause you to default, and as a result, your credit report will be affected and future finance applications jeopardised.

Do I need to own a home to get a buy-to-let mortgage?

Not necessarily, as there are a small minority of buy-to-let mortgage lenders who will offer mortgages to first-time buyers under the right circumstances. That said, most mortgage providers do prefer customers who’ve owned a residential property for at least six months.

To find a lender who’s willing to consider a first-time buyer buy-to-let mortgage, it’s recommended that you use a mortgage broker who knows the market well.

What stamp duty do I pay on buy to let?

The information below shows the current stamp duty rates for buy-to-let properties in England and Northern Ireland, which are in effect until March 2021.

  • Property Price: £0-£500,000
  • Stamp Duty Rate: 3%
  • Property Price: £500,001-£925,000
  • Stamp Duty Rate: 8%
  • Property Price: £925,001-£1.5m
  • Stamp Duty Rate: 13%
  • Property Price: Over £1.5m
  • Stamp Duty Rate: 15%

You can read more about stamp duty and how it’s calculated on HMRC’s website.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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