Investment Property Mortgages

Find out about Investment properties and how a specialist mortgage broker can help you

Which of the below best describes your situation?

Home Buy To Let Mortgages Investment Property Mortgages
Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Nathan Porter

Reviewer: Nathan Porter

Independent Mortgage Advisor

Updated: April 5, 2024

How we reviewed this article:

Our experts continuously monitor changes in the financial space and work closely with qualified mortgage advisors for factual verification.

April 5, 2024

If you’ve got some extra cash and are looking to invest it, property can indeed be a good avenue to explore. To find out what different types of investment mortgages are available, whether you’d qualify for any and how to apply, read the complete guide below.

What is an investment mortgage?

This is an umbrella term referring to any type of mortgage used to purchase a property that’s being bought as an investment and isn’t intended for personal uses. In most cases, an applicant would in fact already have a residential mortgage and be looking to increase their assets by purchasing another property to rent or renovate and sell.

It could be that you’ve saved a significant sum of money, received an inheritance, or been the beneficiary of a big enough bonus and see property as a solid investment.

Investment property mortgage types

The types of mortgages available for investment property in the UK include:

  • Buy-to-let (BTL) mortgages: This is the best mortgage for a property you’ll rent out. There are certain subcategories within BTL mortgages such as:
    • House of multiple occupancy (HMO) mortgage: what you’d need if you plan to have more than three tenants not of the same household, perhaps students, rent out the property.
    • Overseas BTL mortgage: what you’d need if you planned to buy a bolthole in the Turkish sun or a mini chateau in the south of France to rent out.
    • Holiday let mortgage: what you’d apply for should you plan to rent out your UK-based seaside apartment or city Airbnb on a short-term basis.
    • Commercial BTL mortgage: what you’d need should you want to purchase business premises, such as an office space, shop, warehouse or restaurant, that you’d then lease out.
  • Buy to sell mortgages: If you’ve found a run-down property, this short-term loan would facilitate its purchase and renovation before you sell it and ideally make a profit.

If you’re unsure which of these might be right for you, you can talk through each option with a specialist investment property broker who can assess your situation and recommend what might be most suitable.

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How to get an investment mortgage

If you’ve decided a UK investment property mortgage is something you’d like to pursue, you should start by:

          1. Ensuring it’s something you can afford.

You’d need to have enough money for a deposit, the fees, and the monthly repayments on top of any existing repayments you might already have with a residential mortgage. Some of this might come from the rent you’ll charge if opting for a buy-to-let. You can get an idea of whether your mortgage payments will be affordable by using our buy-to-let calculator below:

Buy-to-Let Mortgage Calculator

Our buy-to-let mortgage calculator can show you how much your mortgage could cost you each month and overall. Simply enter the rental property value, deposit, anticipated monthly rent, interest rate, mortgage term and our calculator will do the rest.

Enter the value of the rental property here
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A deposit of at least 20% is usually required for a buy-to-let mortgage
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Most lenders will require a deposit of at least 20%
Deposit must be less than the property value
Enter the anticipated monthly rent here
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Enter the mortgage rate, 5.5% is a typical rate currently but this can vary
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Enter the mortgage term, 25 years is the average but lenders can offer shorter and longer terms
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Borrowing

Loan to Value ratio (LTV):

Most lenders won't offer buy-to-let mortgages over a LTV of 80%.

Interest Cover Ratio (ICR):

Most lenders require rental income to be at least 125%-145% of the interest repayments for a buy-to-let mortgage.

Get started with a specialist buy-to-let broker to find out how much they could help you save on your monthly mortgage repayments.

            2. Deciding on the type of investment mortgage.

It might be that you’re only eligible for one type of mortgage for an investment property, which makes it an easy decision but if you could potentially apply for a few different ones, do your research and think about which arrangement you’d prefer.

If you don’t have experience in home renovations a BTL mortgage might be best, and if you’d like to have regular interaction with the property and its tenants perhaps a holiday BTL mortgage is for you.

It’s also worth looking outside the box, such as at streets with royal names. As research shows, the value of these properties can increase more than properties on non-Royal street names.

          3. Building and submitting an application.

Ask your mortgage broker which lender they’d recommend for the specific mortgage you’re looking for. They usually have access to mortgage providers an individual wouldn’t and can tap into those relationships to find you a good deal while ensuring you meet the lender’s specific requirements. You can then work together to compile the necessary paperwork so you can submit and apply for the mortgage with confidence.

Make an enquiry with us to get started with an investment mortgage broker who can guide you through the process.

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Which lenders offer these mortgages?

Not all lenders offer investment mortgages, and of those that do, they may only offer one or two of the products under that umbrella. For example, BTL mortgages are quite popular among high street lenders, such as NatWest and HSBC, while overseas BTL mortgages, holiday let mortgages, and commercial mortgages would be more of a specialised product.

Below is a list of mortgage lenders who are known to consider applications for this type of borrowing:

  • BTL mortgage: Virgin Money, Santander for Intermediaries, Metro Bank
  • HMO mortgage: Central Trust Limited, Kensington Mortgages, Barclays
  • Overseas BTL mortgage: Articus Finance, Barclays, HSBC

Sidenote: Not all lenders will be open to lending for all countries.

  • Holiday let mortgage: CHL Mortgages, Together, Hodge
  • Buy to sell mortgages: Hope Capital, LendInvest, Together
  • Commercial mortgage: TSB, Aldermore, Generation Home

Sidenote: Certain lenders will only offer commercial investment mortgages on specific types of premises. While some would approve shop use others might reject that and only approve office space.

This isn’t information you need to worry about though. The brokers we work with have an extensive database of lenders that they can tap into to direct you to a lender best suited for the investment mortgage and rate you’re looking for.

What interest rates to expect

In general, you can expect investment property mortgage rates to be slightly higher than on a residential mortgage. For example, BTL mortgages can have a rate of at least 1% higher and come with bigger fees. This is because such loans are seen as coming with slightly bigger risk.

When it comes to rates for commercial mortgages, these are very much decided on an individual basis after a provider assesses your application and the perceived level of risk.

Work out your rental yield

Rental yields are the amount of cash your property generates, calculated as a percentage of its value, and broken down into net and gross values. 8% is generally regarded as a ‘good’ gross rental yield for an investment property. To calculate your rental yield, simply use our calculator below:

Rental Yield Calculator

This calculator will show you the rental yield on your buy-to-let property using either the original purchase price, plus associated costs, or the current value. All you need to do is choose which option you want to base your calculation on and your monthly rental premiums.

Input either the original property purchase price or current value to work out the rental yield.
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Gross Rental Yield:

Net Rental Yield:

Now you've worked out what your current rental yield is, why not speak to a broker to see what buy-to-let mortgage/remortgage opportunities are available? With their expertise in this market they'll be able to identify a range of new deals which could reduce your mortgage payments and, as a result, improve your overall rental yield.

Who is eligible?

As with any type of mortgage, there’ll be a set of requirements each lender will want you to meet. That criteria will vary depending on the lender and the type of investment mortgage you’re applying for. But, in general, they’ll all be looking for reassurance that you’ll be able to make the repayments, especially given they perceive non-owner occupied properties as more risky.

You can read some of the typical requirements below.

  • Deposit: For a BTL mortgage most lenders look for an amount above 15% while commercial mortgage lenders might ask for anything between 25-50%. If purchasing overseas, the deposit requirements will then correlate with the requirements of the local lending market.
  • Property type: Some lenders may stipulate that a property must be standard to avoid the increased risk that comes with a non-standard property.
  • Rental income: BTL mortgage lenders emphasize the potential rental income of the property. Ideally, it should be 125% or above – typically 140% if a holiday let – of your mortgage repayments. Other lenders might stipulate a minimum income of £25,000.
  • Credit history: With any mortgage application, good credit is always an advantage but some specific lenders offer bad credit BTL mortgages and, in the case of commercial mortgages, the assessment on a case-by-case basis offers a further degree of flexibility.

Additional factors a lender might consider include landlord experience if applying for a BTL mortgage and evidence of a solid business if opting for a commercial mortgage

Can you get a second mortgage to buy an investment property? 

Yes. Some investment mortgage lenders even stipulate that an applicant must have had a residential mortgage for a set amount of time before they can take out a second mortgage for an investment property. 

If you already have an investment property mortgage and are looking to take out a second investment property mortgage, that’s also acceptable, however, some lenders will set limits on the amount of mortgages they’re willing to offer one person. And if it’s BTL mortgages you’re focussed on, the cap for the number you can own varies from one lender to the next but is usually 10 or the equivalent of £3 million.

You can read more about the rules around multiple buy-to-let mortgages in our complete guide to portfolio mortgages.

Speak to an investment mortgage broker

Investment property mortgages can be a world unto themselves, which is why it’s useful to team up with an expert who understands the nuances of each investment mortgage type and how it might work for you. The brokers we work with have specialised training and expertise and won’t give you generic mortgage advice but support that’s tailored to exploring, and then applying for, a specific property investment mortgage. This support will see your chances of mortgage approval increase as well as the likelihood of getting a better deal than you’d find alone.

Give us a call today on 0808 189 2301 or fill out our enquiry form and we’ll see you swiftly matched to a mortgage broker who has the expertise you need.

FAQs

Yes, provided there’s enough equity in the buy-to-let home and the rental income is enough to cover both repayments you’d have to make. This would be called a second charge buy to let mortgage.

There’s actually no cap (with the exception of the limit of 10 BTL properties that some lenders apply) and in fact some lenders work exclusively with people who have a whole portfolio of investment properties. Others however, might have their own limit of what they’re comfortable with.

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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 Online Mortgage Advisor of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

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