What is a buy to let mortgage

You need a buy to let mortgage if you’re buying a property that you plan to rent out.

You may also need to switch to a buy to let mortgage if you want to rent out your current home. 

If you only want to rent out your home for a certain amount of time you might be able to get 'consent to let' from your lender. For example, if you get a job abroad.

Consent to let

If you get consent to let from your lender you can rent out your home temporarily. You do not have to switch to a buy to let mortgage.

Buy to let mortgages tend to be more expensive.

Contact your lender if you’re thinking about renting out your home as you need their permission.

Without permission, you could be in breach of your mortgage contract. Your lender could see this as fraud.

Coronavirus and buy to let mortgages

It's harder to get a buy to let mortgage at the moment because of coronavirus.

Lenders are concerned about the risk of tenants not paying rent and falling house prices.

Some have left the buy to let market, while others have withdrawn certain buy to let deals.

The mortgage market can change fast and some lenders are already bringing deals back.

Find out which lenders are still offering buy to let mortgages by speaking to a broker.

How do buy to let mortgages work

Buy to let mortgages are different from normal residential mortgages.

Often with a buy to let mortgage:

  • you need a deposit of at least 25%

  • the interest rate is higher

  • the lender fees to get a mortgage are higher

  • most deals are interest only

  • you'll get different financial protection

Interest only mortgages

Lenders let you sell the property to pay off the loan if you have an interest only buy to let mortgage. Most lenders do not let you do this with a residential interest only mortgage.

More about interest only buy to let mortgages.

Financial protection

Buy to let mortgages for landlords who invest in property are not regulated by the Financial Conduct Authority (FCA).

If you’re an 'accidental landlord', your mortgage will be FCA regulated.

You’re an accidental landlord if you’ve:

  • inherited a property

  • moved in with your partner

  • rented out your property short term

If the FCA covers your mortgage, you'll get more financial protection. For example, you might be able to use the Financial Services Compensation Scheme.

Types of buy to let mortgage

If you take out a buy to let mortgage there are 3 products you can choose from.

Fixed rate mortgage

A fixed rate mortgage lets you fix your mortgage rate from between 2 to 15 years.

Your repayments will stay the same during that time.

Often, the longer you fix your rate for, the higher your interest rate will be.

Read more in our fixed rate mortgage guide.

Discount variable rate mortgage

Discounted variable rate mortgages are linked to your lender's standard variable rate (SVR).

You'll get a discounted rate for some time, usually between 2 and 5 years.

These mortgages usually have the lowest interest rates and lowest monthly repayments.

Your monthly repayments can go up or down.

Tracker mortgage

Tracker mortgages follow the interest rate of the Bank of England’s base rate.

They often track a certain percentage above it.

Your monthly repayments can go up or down.

How much deposit for a buy to let

For a buy to let mortgage you often need at least a 25% deposit.

Some high street lenders will let you put down 20% and some specialist lenders 15%.

Deposits are higher for buy to let mortgages. This is because lenders often think the loan is more of a risk than for a residential mortgage.

For example, there may be times when the property is unlet, or the tenants do not pay the rent.

The bigger the deposit the better

There are downsides to mortgages that let you put down a deposit as low as 15%.

With a small deposit:

  • the rates will not be as good as few lenders offer them

  • you have to be a landlord already

It’s a good idea to put down as big a deposit as you can afford. The higher the deposit you put down the better rate you’ll get.

Speak to a broker about your financial situation. They’ll let you know which buy to let mortgage would suit you best.

How to get a buy to let deposit

There are many ways that you could get a buy to let deposit. For example, remortgaging your current home to release some equity.

Equity is the value of your home minus the amount you still owe on it.

Find out more by reading our remortgage guide or house deposit guide.

How much can I borrow with a buy to let mortgage

The amount you can borrow with a buy to let mortgage depends on how income you expect to get in rent.

You often need a monthly rental income of 25 to 45% more than your monthly mortgage repayments.

Many lenders ask for at least £25,000 in rental income. Others may not ask for a minimum at all.

If you’re a first time buyer, a lender is likely to consider your gross salary when you apply for a buy to let mortgage.

More about buy to let mortgages for first time buyers.

Buy to let mortgage calculator

A buy to let mortgage calculator works out how much you might be able to borrow based on your rental income.

Some buy to let mortgage calculators will also tell you the monthly income you can expect to get from a buy to let property.

To use a calculator you’ll need to know:

  • your rental income 

  • how much the property is worth

How are buy to let mortgages calculated

Most lenders need your rental income to be within 125% to 145% of your monthly buy to let mortgage repayments.

This is so they can be sure you’ll be able to afford the repayments.

For example, if your mortgage repayments are £500 a month, you'll need to have a monthly rental income of at least £725 if a lender asks for 145%.

How much mortgage can I afford for a buy to let

Think about all costs when working out how much you can afford for a buy to let mortgage.

Costs include:

  • tax on your rental income

  • landlord’s insurance

  • rent insurance

  • letting agent fees

Find out more about fees in our mortgages guide.

Compare our best buy to let mortgage deals

Compare 12,000 deals from 90 lenders. One of our advisers can check if you're eligible for the buy to let mortgage deals you find.

Your home may be repossessed if you do not keep up repayments on your mortgage.

There is no guarantee that it'll be possible to arrange continuous letting of the property. Or that rental income will be enough to meet the cost of the mortgage.

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Is buy to let worth it

Whether a buy to let is worth it depends on things such as how much:

  • money you’ll make

  • time you’ve got

There have been important changes to buy to let tax rules over the last few years. These could affect how much you’d earn when you rent out a home.

One of the biggest is that if you buy a second home you now have to pay a 3% higher rate of stamp duty.

Some tax reliefs have also changed.

Tax relief changes include:

  • the money you could reclaim replacing items in the home

  • interest paid on any buy to let mortgage used to buy the home

The changes have made it harder for some buy to let investors to make a profit. Some decided to sell part or all their portfolio.

1 in 4 landlords were looking to sell at least one property over the next 12 months, according to a study.¹

Changes to buy to let tax rules

Changes to buy to let tax rules have been in place since 6 April 2020.

You can no longer deduct any of your mortgage payments from your rental income before you pay tax.

Instead, the whole of your interest payment will qualify for 20% tax relief.

You can only get tax relief on expenses for costs involved in letting the business. For example, paying a plumber to repair a faulty boiler.

Expenses cannot be capital expenditure like adding something new to the property. This includes improving or upgrading something that increases the value of the property.

These costs should be taken away from capital gains when the property's sold.

If something like fitting a kitchen that is like for like, you can set the cost against your rental income.

Even if an expense is not capital expenditure you can only expense it if it's either:

  • repairs and maintenance

  • replacement of domestic items

Repairs and maintenance

Repairs and maintenance apply to items in the property or to the property itself, on a like for like basis.

You cannot claim for repairs that insurance has covered

You can claim for excess amounts or parts of the repair work that you’ve had to pay for yourself.

Replacement of domestic items

You cannot expense furnishings and equipment you buy for the property for the first time.

You can replace domestic items that are a similar standard or value.

This includes movable furniture, furnishings, household appliances and kitchenware.

Some landlords are still confident

Some property investors are still growing their portfolios.

A 2019 survey of 19,000 landlords found that:

  • 73% thought property is the best, most stable long term investment

  • 83% said they were either unlikely or very unlikely to sell a property over the next year

  • 58% said they planned to stay put for the next five years²

Buy to let mortgage rates have fallen in the last few years. This has helped some landlords make a good return.

How to make money from a buy to let

You could earn money from a buy to let if:

  • your property goes up in value

  • rental rates go up in the local area

Think about what is more important for you as it'll affect what type of property you buy and where.

If you want to make more money in the long term, consider buying in an area where house prices have not gone up recently just risen.

If you’re interested in making money now, choose somewhere with high rental demand. Such as near a university.

You could consider regions in the UK that have seen a fall in house prices.

Prices in East of England were down 0.7% in November 2019 compared to the same time the previous year. This data is from the Office for National Statistics.³ 

If you buy a property from a landlord, you’ll know what to expect to make in rent each month. You could even buy somewhere that already has tenants.

How to find a buy to let mortgage

A good way to find a buy to let mortgage is through a broker.

Some of the best buy to let mortgages that lenders offer are not available directly to borrowers.

You can only get those rates if you go through a broker.

Trussle is fee free and has access to around 12,000 mortgage deals.

Buy to let mortgage providers

Major lenders like Barclays and NatWest offer buy to let mortgages.

You can also get them from smaller lenders, such as Bluestone, Kensington and Kent Reliance.

Some smaller lenders have less strict rules about how much you can borrow.

You may have to pay an early repayment charge to your existing lender if you remortgage.

How many buy to let mortgages can I have

How many buy to let mortgages you can have depends on the lender.

Some will not lend to portfolio landlords who have 4 or more buy to let mortgaged properties.

Many of the big buy to let lenders set a limit of around 3 to 5 mortgaged properties. Or a maximum amount of borrowing with them.

Some lenders even set limits on how many buy to let mortgages you can have with other lenders.

To see what lender would be best for you, speak to a mortgage broker.

Should I set up a company for buy to let

Whether you should set up a company for your buy to let depends on how many properties you want to rent out.

The benefit of having a limited company is that they are not affected by the changes in buy to let tax rules.

Setting up a buy to let limited company can be difficult and expensive. It is unlikely to be worth it if you only plan to rent out one property.

And if you’ve got more than one, it still might not be a good idea financially.

Interest rates can be higher if you buy a buy to let through a limited company.

Speak to a tax adviser about what’s best for your situation.

Interest only buy to let mortgages

Most buy to let mortgages let you choose to pay only interest each month.

This is an interest only mortgage.

With most mortgages you pay both interest and some of the loan each month.

You’re likely to have to pay a higher interest rate with an interest only mortgage. But your monthly payments should be much lower.

You’ll need a plan in place to pay off the loan at the end of your mortgage. 

This could be:

  • selling the property

  • investments

  • an endowment

  • taking out another mortgage

Find out more in our interest only mortgage guide.

First time buyer buy to let mortgages

There are few buy to let mortgages for first time buyers. Some will not let you at all.

Those that do are likely to consider your gross salary when you apply for a mortgage.

The minimum is often around £25,000 and the lender will have certain rules.

As you do not already own a home, you do not have to pay the 3% stamp duty surcharge for investors and second homebuyers.

As you will not be living in the property you cannot get a first time buyer stamp duty discount.

All mortgage guides, calculators and deals

Sources

¹ Residential Landlords Association, Renting Housing Crisis As Landlords Sell Up

² Benham & Reeves Landlords Survey 05.07.19

³ National Statistics UK House Price Index summary: November 2019

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