Buy-to-let Mortgages Calculator

To rent out a property you must have a buy-to-let mortgage – unless you are purchasing the property outright. Before applying to lenders, find out how much you could borrow with our free and easy to use buy-to-let mortgage repayment calculator.

John Ellmore Published on 26 November 2020. Last updated on 20 January 2021.
Buy-to-let Mortgages Calculator

How is the interest on buy-to-let mortgages calculated?

Buy-to-let mortgages interest rates are calculated in the same way as residential mortgages. The sum you’ll need to borrow on top of your deposit to be able to buy the property – and your loan term will determine how much your mortgage will cost you in total.

Buy-to-let mortgages have higher interest rates and fees than residential mortgages, as they are considered higher risk by lenders. Providers also expect a higher deposit for buy-to-let mortgages, typically 25% to 40%. Putting down a 40% deposit, meaning you will have a 60% Loan to Value (LTV), could give you a higher chance of getting the best buy-to-let mortgage rates.

How much can I borrow on a buy-to-let mortgage?

With a residential mortgage the amount you can borrow is closely tied to your salary. Buy-to-let mortgages are approached in a different way. As well as looking at your salary and credit score, lenders also base how much they are willing to lend you on your projected rental yield for the property you intend to rent out.

Providers will require your rental income to be at least 25-30% higher than your mortgage payments. This shows them that you can afford to repay the mortgage and reduces the financial risk should the property be empty for a period of time.

Find out more about financing property development in our guide if you are new to the topic.

What is a rental yield?

Rental yield is the return on investment a property investor expects to achieve from renting their property. Expressed as a percentage, it is calculated by dividing the annual rental income of a property by the total amount that has been invested in the property, including the price you paid for it and any maintenance costs.

Rental yield is a key measurement of success for property investors. It helps you keep track of whether your income is exceeding your investment or whether you are losing money on your property.

You need to ensure your property income leaves you enough capital for repairs and maintenance. If you are only breaking even, you could start losing money if you have to pay for a broken boiler or faulty electrics.

What is a good return on a buy-to-let mortgage?

A rental yield between 5-8% is usually considered a healthy return. Rental yield is calculated by dividing your yearly rental income by the purchase price and costs involved in running the property. When you have this figure multiply it by 100 and you’ll get your rental yield percentage.

Here’s an example:

Let’s say you’ve found a rental property that can be rented out for £1,000 per month, your yearly income would be £12,000. If the property was purchased for £150,000 and needed £7,000 on repairs your rental yield calculation looks like this:

12,000 / (150,000 + 7,000) x 100 = 7.64%

How much do I need for a buy-to-let mortgage deposit?

As with any mortgage, typically the higher your deposit the less your total mortgage costs will be. With buy-to-let mortgages, the minimum deposit expected by a lender is usually 25%; most deposits for buy-to-let mortgages usually range between 25-40%.

Who can take out a buy-to-let mortgage?

You’ll need to have a good credit rating and normally be earning £25,000 a year or more to get a buy-to-let mortgage, as most lenders will require this to ensure you’ll be able to afford repayments. In most cases you will also need to own your own home already, either outright or with a mortgage.

As well as this, the majority of lenders place upper age limits on buy-to-let mortgages. These are usually 70-75, however, you may be able to find buy-to-let mortgage products for older borrowers from specialist lenders.

Be aware that the upper age limit refers to the age you’ll be when you reach the end of the mortgage term. So, if you need a mortgage term of 25 years, you would need to be around 45 years of age to secure that mortgage product.

Is it difficult to get a buy-to-let mortgage?

Although buy-to-let mortgages are seen as not being as easy to secure as a residential mortgage, they are achievable by many.

The minimum requirements for a buy-to-let mortgage are that you earn at least £25,000 a year, are a homeowner, and have a good credit score, although lenders will have their own criteria and will look at your whole financial situation before approving or rejecting an application.

You’ll also need to be within a lender’s upper age limits otherwise you’ll find it much harder to get a good mortgage deal, though it’s far from impossible for older borrowers.

Can I live in a buy-to-let property?

If you have taken out a buy-to-let mortgage, you will not be able to live in the property. If you want to live in a property with a buy-to-let mortgage you will need to refinance to a residential mortgage which would also be less expensive.

Can I rent a property with a residential mortgage?

When taking out a residential mortgage, one of the key terms is that you cannot rent out the property. The most serious fallout of renting out your residential mortgaged property without consent from your lender is that they can demand you pay back the mortgage in its entirety immediately and they could repossess the property.

There is an exception: Consent to let is an agreement with your lender, whereby, if you want to move but cannot sell your property, you can temporarily rent your home out on a residential mortgage. You may need to pay a fee or higher interest rates to get this consent and it has a limited term.

Is it best to repay buy-to-let mortgage capital each month?

Although buy-to-let mortgages are usually interest-only, which means you only repay the interest of the loan each month and pay off the capital at the end of the term (by selling the property for example), repayment mortgages are also available. With this type of mortgage you repay both the capital borrowed and the interest which accrues on that sum each month with monthly repayments.

You might choose a repayment mortgage if you want to fully own the property at the end of the term. With this type of buy-to-let mortgage you will also pay less interest because the full amount you owe decreases with every payment you make.

Repayment mortgages will also appeal to those who don’t want the pressure of having to sell their property to fund the repayment of their mortgage. However, as repayment mortgages would result in higher monthly payments, you would need to be able to charge a higher rent to cover this additional cost which could put off tenants.

Also, you can only claim back tax on any mortgage interest repayments, so there’s no real tax advantage to paying back the capital in your monthly payments.

About the author:

John Ellmore is a director of NerdWallet UK and is a company spokesperson for consumer finance issues. John is committed to providing clear, accurate and transparent financial information. Read more

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