Buy to let
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A buy to let mortgage is a loan secured on a residential property with the specific aim of letting it out to tenants.

Yes, you will need a buy to let mortgage in place to let out your property to tenants. If you let out a property on a homebuyer mortgage without the lender's consent, you may be in breach of your mortgage conditions. This could result in your lender calling the loan early. 

The only situations you wouldn’t need a buy to let mortgage for an investment property are: 

• If you purchased the property outright with cash and don’t need a mortgage, or 
• If your existing home mortgage lender formally permits you to rent the property. 

Get in touch with one of our expert brokers to discuss your options.

We recommend you have a minimum 25% deposit for buy to let investment. However, anything between 25-40% will get you access to the most competitive rates.  

Technically, the minimum deposit for buy to let property is 15%. You’ll find mortgage interest rates at 85% loan to value (LTV) quite expensive.  

You need more deposit for buy to let mortgages because lenders view them as a higher risk than mortgages on your home.  

Buy to let mortgages and the mortgage you have on your home have several differences. 

Affordability calculations

Lenders assess buy to let mortgages based on the ability of the rent to cover the mortgage costs. 

Lenders assess mortgage affordability for the property you live in based on your income after committed monthly outgoings. 

However, your income will play a part in the affordability assessment of your buy to let mortgage. Your lender needs to be confident you could cover the mortgage repayments should your property stop generating rent. 

Some lenders require you to have a minimum income of £25,000, while others are more flexible. 

Interest rates

Buy to let mortgage interest rates are generally higher than standard home mortgages. This is because lenders consider them a higher risk. 

Arrangement fees

Typically, lender arrangement fees for buy to let mortgages are higher than for standard home mortgages. Sometimes, rather than a flat fee (e.g. £995), lenders charge BTL arrangement fees as a percentage of the loan amount. For example, 1% of the loan. 

Conveyancing and valuation fees

As buy to let mortgages are more complex to secure, your solicitor/conveyancer may charge more than they would for your home mortgage. Property valuation fees are also usually more expensive. 

Regulation

In the UK, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) regulate: 

• all mortgages on properties that you, the borrower, live in 
• the lenders that provide them 

The rules set out by the FCA and PRA are to:  

• protect you, the borrower, from taking on unaffordable debt 
• ensure you receive fair and accurate advice 
• encourage competition within the mortgage market 

 The FCA does not regulate buy to let mortgages. This is because the main aim of renting out property is to make a profit (through rent and/or growth in property value). Therefore, lenders treat them as business transactions for regulation purposes. 

At MFB, the advice you receive is fair and accurate regardless of the type of property finance you’re applying for. 

Each buy to let mortgage lender has their own criteria for deciding how much you can borrow. However, they will all consider these two primary factors:  

 Loan to value (LTV) 

This is the ratio of how much you wish to borrow in relation to the value of the property you’re buying or remortgaging.  

For example, a 75% LTV mortgage on a property valued at £100,000 means you are borrowing £75,000. 

The higher the LTV, the greater the risk to the lender. Generally, the more of your own money you invest, the lower the mortgage interest rates you can access.  

Rental income 

Technically, buy to let properties should be self-funding. The monthly rent should cover the mortgage repayment and any other costs associated with running the property. 

Lenders use a rent-to-interest (RTI) or interest coverage ratio (ICR) calculation for affordability. We explain how these calculations work below. 

You may know Rent to interest (RTI) as interest coverage ratio (ICR), debt service cover (DSCR) or “stress test”. Different lenders use different terms, but they all mean the same thing. 

Buy to let mortgage lenders use this calculation to ensure the expected rent will cover the mortgage interest and other costs associated with running your BTL property.  

Here’s an example of how RTI works: 

You rent a property for £1,500 per calendar month, which you own in your personal name. A lender will stress test this monthly rent at 145% at a 5-year fixed interest rate of 5.5%*. Based on this, you could borrow a maximum of £225,705. 

 If you owned the property in a Limited Company, the calculation would be 125% at 5.5%*. This means you could borrow a maximum of £261,818. 

 However, lenders don’t only consider whether you invest in your personal name or via a Limited Company. They will also consider: 

• Whether you’re a basic or higher-rate taxpayer 
• The type of property you’re mortgaging 
• Your background property portfolio 

Each lender uses a slightly different calculation, so you might be able to borrow more from one than another. That’s why using our team of expert brokers is so valuable – we do all this time-consuming comparison work for you! 

 *Rates are for illustrative purposes only and may vary. 

You should consider three main points when comparing buy to let mortgages. Surprisingly, the headline interest rate isn't one of them! 

Criteria – lender criteria vary enormously. While you might be a textbook applicant for one, another wouldn’t even consider you! That’s why it’s best to start with the buy to let lenders that will accept you before thinking about mortgage interest rates. 

 Cost – the true cost of the mortgage is more important than the interest rate. The product with the lowest interest rate might have additional fees, making it more expensive than one with a higher interest rate. Our bespoke buy to let mortgage sourcing system makes it easy for us to compare these costs for you. 

 Hidden fees – although less common now, some mortgages have quirky additional terms, such as exit charges beyond the initial fixed-rate period. Our mortgage experts will explain everything clearly and ensure you understand their recommendation before proceeding. Still, you and your solicitor must read over all the mortgage documentation before signing the mortgage offer.

Most BTL mortgage terms are 25 years. However, some lenders have restrictions around the age you can be when you apply, or how old you'll be when the mortgage term ends. Your plans for the property will also influence how long you borrow for. 

 A shorter mortgage term will reduce the amount of interest you pay on the capital loan. Our experienced buy to let brokers can help you determine what’s best for your circumstances. 

Some lenders can allow top slicing to help with affordability calculations. This is when you use personal income or rental income from your background portfolio to boost the RTI calculation. This will enable you to borrow more than if you relied on just the property’s monthly rental income. Not all lenders offer this, but our knowledgeable team can help you find the lenders that do if you need it. 

Capital and interest repayments mean that each month, you repay part of the primary loan (the capital) and the interest charged by the lender. 

Interest-only repayments are when you only repay the interest charges every month. This means the capital loan does not decrease over time.  

Most landlords opt for interest-only buy to let mortgages, as it makes monthly repayments smaller, which can be better for cash flow. our lender needs to know how you will repay the capital loan at the end of the mortgage term when you apply. Typically, landlords sell the property or use proceeds from the sale of another to repay the capital at the end of the mortgage term. 

Lenders do offer capital and interest repayments for buy to let mortgages. Our experienced buy to let brokers can talk you through the options to help you decide the best repayment structure for you.  

Whether you get a fixed or variable mortgage rate is a personal preference, but we can help you decide. 

With fixed-rate mortgages, your monthly repayments won't change during the initial fixed-rate period (e.g., 2 or 5 years). Many BTL investors prefer this, as it helps to budget. However, if interest rates decrease during that period, you can’t take advantage of the reduced rates. 

Variable and tracker mortgages typically follow the Bank of England Base Rate or the lender's standard variable rate (SVR). If interest rates change, your monthly repayments will change. So, one month, you could pay more than the month before, and the next, less. 

Fixed-rate and discounted mortgage interest rates keep payments the same for a set period, e.g., 2,3,5 or 10 years. How long you want to fix for is a personal choice and can depend on your plans for the property and the surrounding interest rate conditions. If you’re unsure, speak to our BTL team, who can discuss the pros and cons in relation to your circumstances. 

Technically, there is no limit. However, lenders do have limitations on:  

• The amount of borrowing across your portfolio (either with them or with other lenders) 
• The number of mortgaged properties you have in the background (either with them or with other lenders) 
• The total loan to value (LTV) across your portfolio  

Essentially, the more mortgages you have, the greater the total debt you owe and, therefore, the higher your risk as a borrower. Our expert broker team know which lenders have which limits and what they are, so we can help you find the right lender.