Compare Buy to Let Mortgages

What is a buy to let mortgage?

A buy to let mortgage is a mortgage arranged on a property which you want to rent out as a landlord rather than live in yourself. For this reason, you may also see buy to let mortgages referred to as landlord mortgages, while they are commonly abbreviated to BTL mortgages too.

Importantly, a buy to let mortgage shouldn’t be confused with a let to buy mortgage, which allows you to rent out the property where you currently live and buy yourself a new home.

How do buy to let mortgages work?

A buy to let mortgage shares many characteristics of a standard residential mortgage in that a good credit record can give you access to the best buy to let mortgages and you’ll make regular repayments to your mortgage lender.

However, there are some important differences too, including higher minimum buy to let mortgage deposit requirements than on normal mortgages, and more expensive fees.

Perhaps most notably, you’ll find that most BTL mortgages are offered on an interest-only basis, where your monthly payments go solely towards meeting the interest on your mortgage and the loan amount you borrow must then be paid off in its entirety at the end of your mortgage term. Landlords often use the rental income they receive from tenants to cover their repayments each month, and might then sell the rental property or take out another mortgage to make their capital repayment, if they don’t have the funds required to pay back the loan outright.

Buy to let mortgage rates explained

As with a standard mortgage, the buy to let mortgage rate that you pay will be determined by a combination of factors, including the size of your mortgage, your credit standing, and the type of buy to let mortgage you choose. What you expect to receive in rental income can prove important too.

But even if you’re able to secure the best buy to let mortgage rates, generally these will prove higher than for an equivalent mortgage on a residential property you intend to live in. This is mainly due to the additional risk that buy to let lenders attach to landlords not being able to keep up with repayments if tenants fall behind on their rent or the property is unoccupied for an extended period of time.

The same reasoning also helps to explain the higher fees on buy to let mortgages, and the tendency towards bigger deposits. As a result, it follows that the more substantial the deposit you can put down, the better the interest rate you’re likely to be offered.

Other things to consider when taking out a BTL mortgage

A number of other important factors should always be considered in relation to a buy to let mortgage.

Stamp duty

Not only are you liable for stamp duty when purchasing a buy-to-let property, you must pay an additional 3% on top of the usual banded rates too. However, with a stamp duty holiday in place until 30 September 2021, the extra tariff is currently attached to revised down rates.

» MORE: Learn about stamp duty and the stamp duty holiday

Tax

The rent you get from tenants is liable for income tax at the relevant band. However, certain expenses can be deducted, including fees paid to letting agents, the cost of general repairs and maintenance, insurance, utility bills and council tax, if you pay them as the landlord.

Previously, it had been possible to deduct certain finance costs too, including mortgage interest payments. However, recent rule changes mean these expenses now qualify landlords for a 20% tax credit instead.

Capital Gains Tax is also payable if you sell the property and record a profit.

Other costs of being a landlord

Before committing to a buy to let mortgage, you should also consider some of the other expenses that are usually involved with becoming and then being a landlord. These might include:

• Survey fees and legal fees when buying
• Buy to let building insurance
• Landlord insurance, which many BTL lenders require that you have
• Fees if you use a letting agent
• Costs related to property repairs and maintenance.

» MORE: Learn about how to rent out a house

How to get the best buy to let mortgage for you

Many of the big banks and building societies offer buy to let mortgages alongside their traditional mortgages, while there are plenty of specialist buy to let mortgage lenders too.

Our buy to let mortgage comparison table is the easiest way to find the buy to let mortgage that could suit your needs. To get started, simply amend the property value, the mortgage amount you want to borrow and your favoured term, update results and the buy to let mortgages that are available to you will appear.

To help you decide, there’s an estimate of how much your monthly repayments would be for each mortgage, and important information such as the interest rates, APRCs, and product fees involved. And to finetune your choices, the dropdown menus let you filter the various aspects of a buy to let mortgage that are most important to you, including the type of mortgage you want, the initial period you’re considering, and the features you’d like to see in your buy to let mortgage.

If you’re not sure whether buy to let is a good fit for you, or want help finding a suitable buy to let mortgage, approaching a mortgage adviser is usually a sensible choice.

Can I get a buy to let mortgage?

To qualify for a buy to let mortgage, you will usually need to show that:

• you own your own home, either outright or with an existing mortgage.
• your credit score is good and that you are comfortably meeting any debt or loan obligations that you may already have.
• your annual income is above £25,000 - anything below this, and you could find it difficult to meet the criteria set by buy to let lenders.
• you’re not too old - upper age limits set by lenders mean the term of any buy to let mortgage must usually end before you reach the age of either 70 or 75.
• your financial situation is such that you can take on the risks associated with owning a buy to let property.

Buy to let mortgage deposit: how much do I need?

Whereas residential mortgages are available with a deposit of just 5% the typical buy to let mortgage deposit required is normally 25% of the property value.

Some lenders might allow a 20% deposit, in which case you’re looking at an 80% loan-to-value buy to let mortgage. However, the bigger the deposit you can put down, and the closer you are to 60% loan-to-value, the lower the buy to let mortgage rates you’re likely to be offered.

How much can I borrow with a buy to let mortgage?

The size of your deposit and your financial situation will both play a part in determining how much a buy to let mortgage lender is willing to let you borrow. However, what is usually most important are your anticipated earnings from rental income, as lenders assume this is what you will use to cover your mortgage repayments.

Generally, buy to let lenders want your expected rental income to be at least 25% higher than the monthly repayment on your mortgage, although some may look to as high as 45%.

To gauge how much rent you can reasonably expect to charge, and so to get an idea of whether buy to let is viable for you, you could look online or contact letting agents to find out the current rents being asked for rental properties in your area.

How to apply for a buy to let mortgage

Similar to applying for a standard mortgage, a buy to let mortgage lender will want to see proof of your identity and address, evidence of your earnings from employment and other income, and details of any outstanding loans and debt that you have to your name. They will also fully examine your outgoings and the affordability of the loan.

As a minimum, you’ll usually need:

• Either your driving licence or passport
• A utility bill dated within the last three months
• Three months’ worth of payslips and bank statements, your P60, or if you’re self-employed your most recent accounts
• Credit card and loan statements
• Paperwork showing details of any existing mortgage
• Evidence showing your potential rental income.

The process of applying for a buy to let mortgage may differ slightly between lenders, but generally the path is as follows:

• Get an Agreement in Principle (AIP). This can be done before you’ve found a property and will give you an indication of what you might be able to borrow. Most estate agents like to see an AIP as proof you’re serious about buying.

• Apply for a mortgage. Find the property you like and have an offer accepted, and you should be ready to begin your mortgage application.

• Arrange the legal side. A solicitor or conveyancer can guide you through the legalities of buying a property, and ensure all the relevant searches and surveys have been completed, the contracts are signed correctly, and the money is where it needs to be.

Types of buy to let mortgages

The various types of buy to let mortgage provide different ways for you to structure your loan and payments to best suit you.

• Fixed rate mortgage - by guaranteeing that your monthly repayments will remain unchanged for the fixed term chosen, a fixed rate mortgage can give you certainty. If your repayments are set, you can offer reassurances to tenants that their rent won’t need to rise for a set period of time. On the flipside, you may miss out on lower repayments if interest rates fall and most will want to search for a new deal when the fixed term expires and you’ll revert to your lender’s standard variable rate (SVR), which is usually expensive in comparison.

• Variable rate mortgage - a variable rate mortgage, on which your rate can change over time, can work in your favour if interest rates fall, but will see your payments increase if rates start to rise. Some borrowers like variable rates as they tend to be set lower than fixed rates when comparing your mortgage options, but going forward the risk of a rate rise always needs to be taken into account.

• Tracker mortgage - one subtype of variable rate mortgage is a tracker mortgage, which sees the rate you pay follow the path of the Bank of England base rate. The rate is usually set slightly higher or lower than base rate, but will move up or down when it must. You can take out a tracker mortgage for a set amount of time (after which it will revert to the lender’s SVR) or for the full duration of a mortgage.

• Discounted variable rate mortgage - this variable rate mortgage offers a discount on a lender’s SVR for a set amount of time. Once this expires, the actual SVR becomes payable.

• Buy to let remortgages - switching to a new buy to let mortgage deal is known as remortgaging. You should start thinking about a buy to let remortgage just before your current deal ends if you don’t want to be automatically transferred onto your existing lender’s SVR. If buy to let remortgage rates are much lower than what you’re paying at present, remortgaging before your current deal expires could be a viable option. However, you’ll need to factor into your calculations any early repayment charges on your current deal and the costs associated with taking out a new mortgage. Fixed and variable rate buy to let remortgage options are both usually available.

Advantages and disadvantages of a buy to let mortgage

A buy to let mortgage is a great way to realise your property investment aspirations, but there are plenty of things to consider too.

Advantages of buy to let mortgages

• If you want to invest in property but can't afford to buy outright, then a buy to let mortgage is usually your only option.

• There are no guarantees, but rental properties can grow in value and have the potential to deliver a profit when it’s time to sell. Treat buy to let as a long term investment to give yourself the best chance of reaping the benefit of house price rises.

• Your tenants are effectively paying your buy to let mortgage for you, and if the rent is higher than your repayments, you’ll have an additional income stream too.

• Some of the expenses involved with being a landlord can be offset against income tax, including letting agency fees, Council tax, and maintenance costs. A 20% tax credit relating to the interest on your BTL mortgage is available as well.

Disadvantages of buy to let mortgages

• You’ll usually need a deposit of at least 25% of the property value to take out a buy to let mortgage.

• The money you put in to purchase a buy to let property won’t be easily accessible, as you’ll need to sell the home or secure another mortgage if you want it back.

• Property prices can fall as well as rise, so your investment comes with a risk that you may not make a profit and could even lose money.

• If the buy to let mortgage you take out is interest-only, you’ll need a plan for paying the capital element of this back at the end of your mortgage term. In particular, remember that if the value of your property falls, and you’re hoping to sell it to pay back what you owe, there’ll be a shortfall that must be covered.

• If you have no tenants in situ and no rental income coming in, your mortgage repayments will still need to be made.

• The various costs of stamp duty, insurance, fees and tax can quickly add up. Paying for (and arranging) property repairs and maintenance is your responsibility too.

• Unless you pay a letting agency, getting tenants, asking for and checking their references, and sorting the necessary paperwork is down to you.

Buy to Let Mortgages FAQs