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Buy to Let Mortgage Deposits

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By Pete Mugleston   Mortgage Advisor

Last updated: 3rd December 2018

What percentage deposit do I need for a buy to let mortgage?

The Buy To Let landlord sector is still going strong, despite a 2016 hike in stamp duty and a change in the way the taxman calculates the profit of investors who let out property for profit.

But, what sort of deposit is needed to secure a Buy To Let mortgage in 2018? Most people think you’ll need a minimum of 25% of the purchase price, but with the right advice, this could be lower. And we’re often asked, is the market still open to the casual investor with just a few houses, as well as the professional landlord with a property portfolio of hundreds of properties?

In this feature article we will look at:

How Buy To Let mortgages work and deposit is needed

How do Buy To Let mortgages work?

Buy To Let mortgages are essentially the same as a residential, with the lender taking a charge over the property and borrowers obliged to make payments in the same way. They mainly differ in terms of calculating affordability and eligibility.

How much deposit, on average, is required for a Buy To Let mortgage?

Banks and specialist lenders are still eager to offer Buy To Let mortgages in the UK to those who want to invest in the British property market and most lenders will consider Buy To Let mortgages with a large deposit of 30-40%. Some will also consider a BTL mortgage with a deposit of 20-25%. A few can even offer Buy To Lets with a low deposit of just 15% in the right circumstances.

There are however fewer lenders offering Buy To Let mortgages in Scotland - with higher deposits needed - and it is important to get the right advice from one of the specialist brokers we work with.

Calculating affordability for the maximum you can borrow on BTL mortgages

The maximum amount you can borrow for a Buy To Let mortgage is linked to how much you can rent out a property for. And lenders typically like to see average rental income that is significantly higher than the monthly repayment.

The exact amount depends on the individuals’ tax status, as due to Prudential Regulation authority (PRA) changes, higher rate tax payers will need to evidence more rental income in order to afford the mortgage and increased tax payable.

This is linked to an interest coverage ratio (ICR), where typically lenders require the rent to cover the mortgage payments to a different degree, when based on interest calculated @ 5.5%.

Lower rate tax payers need a minimum of 125% coverage, and higher rate tax payers more than this. Lenders can have different policies on the threshold for higher rate and upper rate tax calculations, as well as for cases they deem more risky.

For example, a £200,000 Buy To Let mortgage with interest calculated at 5.5%, would cost £917 a month in interest payments. This means the monthly rental income would need to be:

125% (basic rate taxpayer) £1,146
145% (higher rate taxpayer) £1,330
160% (top rate taxpayer) £1,467
170% (HMO mortgage) £1,559

If the rent is not enough, higher rate tax payers either borrow less, or would need to consider a lender that is happy to include their own personal income toward mortgage payments – known as “top slicing”.

Other considerations to qualify for a Buy To Let mortgage

Buy To Let mortgage providers also like to see applicants with an existing home or mortgage, a yearly income of at least £25,000 and an upper age limit of 75 by when the 25 year term should be paid off by.

A Buy To Let mortgage can be used to buy all sorts of properties; from one bedroom flats to family homes, student accommodation and multiple-occupancy properties and we work with a number of advisors who are expert in the property investment market.

We can put you in touch with brokers with access to the whole market and who have years of experience in helping landlords and investors secure Buy To Let mortgages with the best rates and up-to-the-minute deals.

What type of deposit will lenders accept as proof for a Buy To Let mortgage?

Raising capital from another property

Professional landlords can structure their business as a Buy To Let Ltd company – which can be tax efficient for portfolios with multiple properties - and use one or more of their existing properties as a deposit for a new mortgage application.

However, although lenders may have different criteria with regards to the maximum number of mortgaged properties allowed, many are happy to lend to Ltd companies and it is important to talk with a broker who knows the specialist Buy To Let market.

House of Multiple Occupants (HMO)

Lenders usually ask landlords for larger deposits for HMO properties but in the right circumstances they may accept a low deposit, some as low 15%.

Bridging loan for a Buy To Let deposit

Bridging loans can be used for a Buy To Let deposit when a landlord has to move quickly to secure finance for a property that needs to be renovated before it is let out.

The amount available is typically based on the Gross Development Value – how much a property will be worth once all work is completed – and can be used to buy the property and pay for the renovation work.

Expert brokers can also access deals that automatically switch to a Buy To Let mortgage once the bridging loan has been repaid.

Builder deposit incentives

Some lenders might also accept what is called a builder’s deposit as an acceptable source for a Buy To Let deposit for a property that is part of a new build development. These sort of deals are popular with investors, because the builder is paying the deposit.

That said, most lenders do not accept this as a viable source of deposit and require the borrower to stump up their own deposit, with the exception of a few specialist lenders who can consider it as part of the total deposit (usually require at least some of their own cash).

Using a gifted deposit to Buy To Let

The specialists we work with can also source Buy To Let property mortgages with lenders who accept what are called gift deposits or concessionary deposits. Gift deposits come in two flavours. A gift from an immediate family member or a present from someone who is not a close relation.

Buy To Let deposit gifted from family

An immediate family member is typically defined as a; spouse, parent, grandparent, sibling, child or grandchild. But talk to an advisor first to check the lender definition that best suits your Buy To Let mortgage criteria.

Buy To Let deposit gifted from someone else

Buy to let Gifted deposits from a someone who is not an immediate family member can also be acceptable to some banks and specialist lenders, and the potential list includes cousins, friends and sometimes employers.

Concessionary purchases (using discount for Buy To Let deposit)

Another Buy To Let deposit scheme, which is connected to a family member, is called a concessionary deposit. For example, a grandparent or parent might decide to sell a property to an adult child or grandchild at a discount, which effectively becomes a deposit accepted by a lender for a Buy To Let mortgage application.

Using personal loans for Buy To Let deposits

Unsecured loans can also be acceptable as a deposit for a Buy To Let property, but not all of it. This means that landlords and investors putting down a 25 per cent deposit would be allowed to use credit to finance around 5 per cent of the total mortgage.

Can I get a Buy To Let mortgage with a small deposit?

Yes. Well, depending on what you consider small!

The exit of some part-time landlords from the Buy-To-Let mortgage market means that lenders are currently trying to win over investors with ever better deals and incentives.

A few specialist lenders now accept a 15 % deposit for a Buy To Let mortgage. So speak to our expert brokers to get a deal that’s right for you from across the whole market.

Can I get a Buy To Let mortgage with no deposit?

We’re often asked, ‘Can I get a Buy to Let mortgage without a deposit? The short answer is no, the minimum deposit required by specialist lenders is 15%.

Is it possible to get a Buy To Let mortgage with bad credit history?

Yes – for many, getting a Buy To Let mortgage with bad credit can seem harder than it actually is if you work with an expert who knows how! Make an enquiry and one of the specialists can give you the right advice.

High street banks may not be interested in Buy To Let mortgage clients with a less than perfect credit score but the expert brokers we work with have access to a range of specialist lenders who are always willing to look at more complicated situations.

In general, it comes down to:

  • The type of the issue (the more severe the harder it is)
  • The date it was registered (the more recent the harder it is)
  • The amount of deposit you have (the more deposit the easier it is)

Depending on when it was registered and your deposit levels, it can be possible to get a Buy To Let mortgage with the following credit issues:

  • No credit history
  • Low credit score
  • Late payments
  • Missed mortgage payments
  • Defaults
  • CCJ’s
  • IVA’s
  • Debt management Schemes
  • Repossessions
  • Bankruptcy
  • Payday Loans
  • And customers with multiple credit problems

So, whether you are a small landlord with just a couple of properties or a professional investor with a portfolio of hundreds, bad credit should not stop you accessing the right advice and the best deals available to you based on your situation and credit history.

The experts we work with will take the time to get to know you and your Buy To Let situation and work to find a mortgage that is the right fit for you and your financial circumstances.

Buy To Let deposit calculator tables

In order to calculate what percentage of the deposit you’ll need and the likelihood of lenders being available in the current market, below are several Buy To Let tables to illustrate different deposits, and the likelihood of approval for each.

As you can see, the minimum deposit for a buy to let needed currently is 15% with a few lenders.

Likelihood of approval Caveat
Buy to let with no deposit Nil Unless other security elsewhere
Buy to let with 5% deposit Nil
Buy to let with 10% deposit Nil
Buy to let with 15% deposit With a handful of lenders Depending on usual factors such as affordability, credit history, and personal eligibility
Buy to let with 20% deposit
Buy to let with 25% deposit With numerous Buy To Let lenders
Buy to let with 30% deposit
Buy to let with 35% deposit With most Buy To Let lenders
Buy to let with 40% deposit
Buy to let with 45% deposit
Buy to let with 50% deposit+

Talk to an expert Buy To Let mortgage advisor

If you would like to find out more about the best Buy To Let mortgages on the market and what deposits are needed call Online Mortgage Advisor on 0800 304 7880 or make an enquiry here.

Then let us do the hard work and find a broker with the right expertise for your financial background. We won’t charge you a fee for this service and your credit score will not be affected.

Updated: 3rd December 2018
OnlineMortgageAdvisor 2018 ©

FCA disclaimer

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.

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.

Find out more about the deposit you need for different mortgages

Mortgages and Deposits