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Buy to Let Mortgages Explained

Martha Lott

Written by Reviewed by Graham Norwood

24th Mar 2020 (Last updated on 7th Apr 2021) 8 minute read

Buy-to-let mortgages are designed for those buying property as an investment to let it out to tenants. As lenders view this type of mortgage as a risk, buy-to-let mortgages will come with stricter criteria and require a higher deposit than with a residential mortgage.

Whilst this type of mortgage will be suited to some people, it’s a huge financial commitment that comes with both pros and cons. As most deals are interest-only, it’s important to ensure you can afford to take out this type of mortgage and pay off the capital at the end of the term.

Compare My Move work with property experts to bring you the most in-depth guides to help with buying, selling, renting and moving. In this guide, Compare My Move talk through what a buy-to-let mortgage is, who can quality for one and how much deposit you need

This article will cover the following:
  1. How Does A Buy-to-let Mortgage Work?
  2. Who Can Get A Buy-to-let Mortgage?
  3. Buy to Let Mortgage Criteria
  4. Buy to Let Mortgage Rates & Fees
  5. How Much Deposit Do I Need For a Buy to Let Mortgage?
  6. How Much Can I Borrow For a Buy to Let Mortgage?
  7. Interest-only Buy to Let Mortgage
  8. Repayment Buy to Let Mortgage
  9. Buy to Let and Tax
  10. Advantages and Disadvantages of Buy-to-let Mortgages
  11. Mortgages For Portfolio Landlords
  12. Buy-to-let Mortgages For First-time Buyers
  13. Learn More About Renting

How Does A Buy-to-let Mortgage Work?

If you’re purchasing a house as an investment, you will need a buy-to-let mortgage. Not to be confused with a let-to-buy mortgage, the majority of buy-to-let mortgages are interest-only mortgages, which means the borrower only pays the interest accrued each month instead of monthly repayments. 

On most residential mortgages, borrowers pay off some of the ‘principal’ loan and a little of the interest each month - meaning that at the end of the term, usually 25 years, they own the property outright. With a buy-to-let mortgage, borrowers pay only the interest off each month, so at the end of the term, they need to pay off the principal loan in full.

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Who Can Get A Buy-to-let Mortgage?

Buy-to-let mortgages are specialist mortgages not designed for everyone. They come with high financial risks and you must have a regular income of over £25,000 to be accepted for this type of mortgage. A buy-to-let mortgage is mainly for:

  • Seasoned investors
  • New landlords looking to begin a career
  • Portfolio landlords (see below)

Buy to Let Mortgage Criteria

Buy-to-let mortgages are suitable for investors and landlords who want to buy a property to let out to tenants. Many mortgage lenders view these mortgages as a higher risk, therefore making the criteria stricter for the amount of mortgage you can borrow

They’re generally more expensive than traditional mortgages so not everyone is entitled to this type of mortgage. We’ve listed the criteria for those looking to get a buy-to-let mortgage.

  • You are a landlord who will invest in property.
  • You’re 45 or younger. Many lenders will have an age limit for when the mortgage term ends.
  • You have your finances in place to afford high mortgage fees and deposit.
  • You are a homeowner, whether that’s with a mortgage or without and have been for at least 6 months.
  • The property you’re buying is in the UK.
  • You have a good credit score.
  • You earn over £25,000.

Buy to Let Mortgage Rates & Fees

Buy-to-let mortgage interest rates will vary depending on the amount you borrow, how much rental income you expect from the property and the different type of mortgage you choose.

If the property value was £250,000 and you have a 40% deposit, TSB can offer an interest-only buy-to-let mortgage deal of 1.44% interest fixed for 2 years and 4.1% after this period. This mortgage comes with a £995 arrangement fee too. The arrangement fee for this type of mortgage is typically anywhere between £995-£3,500. 

It’s recommended to hire a mortgage broker or adviser to help you search for the best buy-to-let mortgage deal. Mortgage brokers will have access to the best rates for most mortgages that aren’t accessible without the help of an adviser. They might charge a fee for their service, but sometimes the service can be free.

How Much Deposit Do I Need For a Buy to Let Mortgage?

The required deposit for a buy-to-let mortgage is typically 25% or more of the value of the property, but this can vary depending on your chosen mortgage lender. The mortgage deposit is set at a higher minimum than a traditional mortgage as many lenders view these as higher risk

Although a 25% deposit is the more common minimum deposit, some lenders will accept a 20% deposit. Like residential mortgages, those looking to access the best mortgage deals with the lowest interest rate, you’ll need a deposit as high as 40% to 45% or over.

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How Much Can I Borrow For a Buy to Let Mortgage?

The amount of mortgage you can borrow will be determined by how much income you expect to make from letting your property. Many lenders will require you to be earning an income that is separate from your buy-to-let property, too. 

Lenders will use interest cover ratios (ICR) to work out how much you expect to earn on rent as part of their affordability assessment. To make a profit, landlords will typically require a 25-30% higher rental income than their monthly mortgage payments.

The current ICR amongst many lenders is 125%, meaning the expected rental income must be 125% of your mortgage payments. The ICR will vary between lenders, some may implement an ICR of up to 145%.

HSBC offers a maximum Loan to Value (LTV) of 75% for their buy-to-let mortgage deal, with the criteria stating the rent must be at least 145% of the mortgage payment. For example, if the monthly mortgage interest payment is £100 (100%), the monthly rental income must be at least £145 (145%).

Interest-only Buy to Let Mortgage

An interest-only buy-to-let mortgage means you will only pay the interest rate that your mortgage has accrued monthly. Whilst this will give you cheaper monthly payments than a repayment mortgage, you will have to pay off the capital debt in full once the mortgage term ends.  

Data from the National Residential Landlords Association shows that interest-only buy-to-let mortgages are more common with landlords. More affordable monthly payments allow landlords to finance their investment of the property, with the plan to sell the property at the end of the term.

Repayment Buy to Let Mortgage

With a repayment buy-to-let mortgage, you will pay interest and a small sum of the overall loan each month. Once the mortgage term is over, you would have paid off the interest and the full price of the house. You will then own the property outright at the end of the mortgage term.

By choosing a repayment mortgage, you won’t have to worry about paying off a large sum of money at the end of the mortgage term, but you will have to pay higher monthly payments than an interest-only mortgage.

Repayment buy-to-let mortgages are rare amongst landlords as they need their monthly payments to be low to make a profit, that’s why an interest-only deal is more preferred. 

Buy to Let and Tax

When you take out a buy-to-let mortgage you will be subject to paying taxes.

Income Tax

You’ll be earning an income from your buy-to-let property, therefore will have to pay income tax. From April 2020, tax relief was set to the basic rate of income tax of 20%. Landlords are no longer able to reduce their tax bill by paying off mortgage payments with their income, instead, relief will be awarded by a reduction in tax liability. 

The new rule has worked out less generously for higher taxpayers who would have received 40% tax relief previously. 

Capital Gains Tax

If you’re a basic-rate taxpayer, CGT will be charged at 18% of any increased value on the property and 28% for higher-rate payers. For the tax year 2020/21, the allowance is £12,000.

Stamp Duty

As you’ll be owning a second property, you will have to pay an additional 3% of Stamp Duty in England, Land Transaction Tax in Wales and 4% of Land and Building Transaction Tax in Scotland, on top of the initial band. Use our Stamp Duty calculator to help work out how much you will be charged.

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Advantages and Disadvantages of Buy-to-let Mortgages

Buy-to-let mortgages will suit some people more than others and come with pros and cons. Below we’ve listed the advantages and disadvantages that come with this type of mortgage.


You will receive an income and profit as you must be earning more from rent than you pay on the interest. 

You are subject to paying Stamp Duty/Land Transaction Tax, Capital Gains Tax and Income Tax.

In the long run, property prices will increase so it is a long term investment.  

The potential drop in property value month on month. 

Most buy-to-let mortgages are interest only, so you only pay the interest per month and not interest and capital.

Requires a higher deposit and has higher interest rates than a residential mortgage.

Mortgages For Portfolio Landlords

A portfolio landlord is someone who has four or more buy-to-let properties. From October 2017, The Bank of England’s Prudential Regulation Authority introduced stricter criteria for portfolio landlords to get a buy-to-let mortgage.

It’s a higher risk to lend to a portfolio mortgage, therefore they must go through the portfolio landlord stress test which includes:

  • The landlord’s experience in the rental market.
  • Proof of their properties and outstanding mortgages.
  • Proof of the landlord’s assets and liabilities.
  • Current and future income of the landlord’s properties.

Buy-to-let Mortgages For First-time Buyers

You can get a buy-to-let mortgage as a first-time buyer, but there will be stricter criteria you must follow. Some lenders will require an even higher deposit and you’ll still have to pay Stamp Duty charges too as you won’t qualify for Stamp Duty relief: however, if you own no other home apart from the buy-to-let, you will not have to pay the 3% surcharge. 

You may face difficulties getting a mortgage for the first home you live in as many lenders will look at outstanding debt on your buy-to-let mortgage.

Learn More About Renting

This article has been part of our renting guide. In the next article, we take a look at let to buy mortgages and when you'll need one. To learn more, read what is a let to buy mortgage.


All data, research, facts and figures have been taken from reputable sources and government data that was accurate at the time of writing. Mortgage criteria, interest rates and policies change regularly and vary depending on the lender and type of mortgage you have. You should speak directly to your mortgage lender for clarification. It should be noted that your home may be repossessed if you cannot keep up with your mortgage payments.
Martha Lott

Written by Martha Lott

Having written for Huffington Post and Film Criticism Journal, Martha now regularly researches and writes advice articles for everything moving house related.

Graham Norwood

Reviewed by Graham Norwood

Property Journalist and Editor,

With over 15 years of experience in residential property journalism, Graham is currently the editor for both Estate Agent Today and Letting Agent Today.

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