Buy-to-let mortgages work quite differently from the mortgage on your own home, because they are about renting a property out as an investment. This guide explains buy-to-let mortgages: what they are, how lenders assess them on rental income, the deposit and costs involved, and the responsibilities of being a landlord.
What a buy-to-let mortgage is
A buy-to-let mortgage is a loan for buying a property you intend to rent out to tenants, rather than live in yourself. Because the property is an investment let to others, lenders treat these mortgages differently from residential ones, focusing on the rental income the property can generate. Buy-to-let is how most landlords finance rental property, and it comes with its own rules, costs and responsibilities, which this guide sets out.
Assessed on rental income
The biggest difference from a residential mortgage is that lenders assess a buy-to-let largely on the rental income the property is expected to produce, rather than your salary. They check the expected rent covers the mortgage interest by a margin, as our guide to rental cover and the stress test explains. Your personal income and circumstances still matter, but the property's rental potential is central to how much you can borrow.
Interest-only is common
Most buy-to-let mortgages are interest-only, meaning you pay only the interest each month and not the capital, which keeps monthly payments lower and maximises rental cash flow, as our guide to interest-only buy-to-let explains. The full loan must be repaid at the end of the term, often by selling the property. This differs from most residential mortgages, which are usually repayment, gradually clearing the loan.
The deposit
Buy-to-let usually requires a larger deposit than a residential mortgage, typically at least 25% of the property's value, giving a maximum loan-to-value around 75%, as our guide to the buy-to-let deposit explains. Some specialist lenders go higher, but the best rates come with bigger deposits. So buy-to-let generally needs more money upfront than buying a home to live in.
Rental cover and the stress test
Lenders require the expected rent to cover the mortgage interest by a set margin, known as the interest cover ratio, typically 125% to 145% depending on your tax position, calculated at a stressed interest rate. This ensures the property remains viable if rates rise or costs arise, as our guide to how much you can borrow explains. The rental cover test is a defining feature of buy-to-let lending.
Who can get one
Lenders set criteria for buy-to-let borrowers, which can include a minimum income, owning your own home, being within an age range, and having a reasonable deposit and credit history. Some lenders prefer experienced landlords, while others accept first-time landlords, as our guide to getting started as a landlord explains. Criteria vary, so the right lender depends on your circumstances, which a broker can help match.
Costs and the stamp duty surcharge
Buy-to-let brings extra costs, notably the stamp duty additional-property surcharge, currently 5% on top of the standard rates, as our guide to buy-to-let stamp duty explains. There are also arrangement fees, which can be higher than on residential deals, plus valuation and legal costs. Factoring in these costs is essential when working out whether a buy-to-let investment stacks up financially.
Tax and being a landlord
Rental income is taxable, and tax rules for landlords have tightened, with mortgage interest now relieved only at the basic rate through a tax credit, as our guide to buy-to-let tax explains. Being a landlord also brings legal responsibilities and the practical work of letting. Buy-to-let can be rewarding, but it is a serious commitment with financial, tax and legal dimensions to understand before investing.
Letting to a family member
Letting a property to a family member is a special case, sometimes called a regulated buy-to-let, because it can fall under tighter regulation than standard buy-to-let. Fewer lenders offer these, and the terms can differ. If you plan to rent to a relative, it is important to tell the lender and choose a suitable product, as using an ordinary buy-to-let mortgage in this situation may breach its conditions.
Building a portfolio
Some landlords own several rental properties, becoming portfolio landlords, who face additional lender scrutiny of their whole portfolio's finances, as our guide to portfolio landlord mortgages explains. Starting with one property and learning the ropes before expanding is a sensible approach. Building a portfolio can grow your income and assets, but it also multiplies the responsibilities, risks and finance involved.
Remortgaging a buy-to-let
Like residential mortgages, buy-to-let deals come to an end, and remortgaging lets you avoid the lender's standard variable rate and secure a new deal, as our guide to remortgaging a buy-to-let explains. The same principles apply: start early, compare the market, and watch for early repayment charges. Keeping your buy-to-let on a competitive rate protects your rental profit, just as remortgaging protects a homeowner's budget.
The risks of being a landlord
Buy-to-let carries real risks: periods without tenants, known as voids, when you still pay the mortgage; problem tenants or rent arrears; maintenance costs; falling property values; and rising interest rates squeezing profit. These risks mean buy-to-let is not guaranteed to make money, and you need financial resilience to weather setbacks. Going in with a clear understanding of the risks, and a buffer for them, is essential.
Getting advice
Because buy-to-let involves mortgage, tax, legal and practical considerations, advice can be valuable. A mortgage broker can find a suitable buy-to-let deal, and a tax adviser can help with the tax side and whether to hold personally or through a company. Given the costs and commitment involved, getting good advice before investing helps you make sound decisions and avoid costly mistakes, as our other buy-to-let guides explain.
Is buy-to-let still worthwhile?
With higher costs, the interest relief restriction and the stamp duty surcharge, some ask whether buy-to-let still adds up, as our guide to is buy-to-let worth it explains. The answer depends on the property, the yield, your tax position and how long you invest. It can still work, but it is no longer the easy win it once seemed, so careful analysis of the numbers is vital before you commit.
Treated seriously, as an investment and a business rather than a get-rich-quick scheme, buy-to-let can build income and assets over time. The landlords who do best tend to research the numbers thoroughly, keep a financial buffer for voids and repairs, stay on top of their responsibilities, and take good mortgage and tax advice before they commit their money.
Approached with open eyes and a clear plan, it remains a route many people use to invest in property for the longer term.
In short
A buy-to-let mortgage finances a property you rent out, assessed largely on the expected rental income covering the interest by a margin of 125% to 145% at a stressed rate. It usually needs a deposit of at least 25%, is often interest-only, and carries extra costs including the 5% stamp duty surcharge. Rental income is taxable with restricted interest relief. Buy-to-let is an investment with real responsibilities and risks.
Where to get help and next steps
Read our guides to the buy-to-let deposit, the rental cover stress test, buy-to-let versus residential, and tax on buy-to-let. This is general information, not mortgage, tax or financial advice.