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By Pete Mugleston | Mortgage Advisor

Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 16th December 2020*

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

The buy to let (BTL) landlord sector is still going strong, despite a 2016’s stamp duty hike 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 2019? 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 much deposit do I need 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%.

And 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. Make an enquiry and we’ll introduce you to one of them for free today.

Calculating how much you can borrow on a buy-to-let mortgage

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 taxpayers 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 taxpayers need a minimum of 125% coverage, and higher rate taxpayers 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 taxpayers 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”.

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 lower deposit, some as low as 15%.

Bridging loan for a BTL 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

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.

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.

Deposit gifted from someone else

Buy to let gifted deposits from 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 BTL 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

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 percent deposit would be allowed to use credit to finance around 5 percent of the total mortgage.

Can I get a low deposit buy-to-let mortgage?

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 one of the expert brokers we work with 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?

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 cause of the issue (an unexpected life event is preferable to general financial mismanagement)
  • The amount of deposit you have (the more deposit the easier it is)

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 mortgage 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 BTL needed currently is 15% with a few lenders…

  Likelihood of approval Are there any exceptions?
Buy to let with No Deposit Nil Unless other security elsewhere
Buy to let with 5% Deposit
Buy to let with 10% Deposit
Buy to let with 15% Deposit With a handful of lenders Depending on the 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 0808 189 2301 or make an enquiry online.

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: 16th December 2020
OnlineMortgageAdvisor 2021 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of 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.

Find out more about the deposit you need for different mortgages

Mortgages and Deposits

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