What Is a Buy-to-Let Mortgage?

A buy-to-let mortgage is a type of mortgage specifically designed for individuals who want to purchase a property with the intention of renting it out to tenants. The key difference between a buy-to-let mortgage and a residential mortgage is that the former is intended for investment purposes rather than for personal use.

Buy-to-let mortgages typically have different eligibility criteria and interest rates compared to residential mortgages. Lenders assess the potential rental income of the property, the borrower’s financial situation, and the property’s value when determining the terms of the mortgage.

They’re often set up on an interest-only basis, which means you only make monthly interest payments each month. The outstanding mortgage/loan balance – i.e. the amount you borrow – doesn’t reduce and is paid back at the end of the mortgage term via a suitable repayment vehicle, usually the sale of the property.

Most BTL mortgage lending is not regulated by the Financial Conduct Authority (FCA). There are exceptions, for example, if you wish to let the property to a close family member (e.g. spouse, civil partner, child, grandparent, parent or sibling). These are often referred to as a consumer buy-to-let mortgages and are assessed according to the same strict affordability rules as a residential mortgage.

Who can get a buy-to-let mortgage?

Many lenders consider a buy to let mortgage as higher risk so you may need to need certain conditions to be eligible for one. These typically differ from lender to lender and may include the following:

This isn’t always the case, but your lender may make it a condition that you already own your own home, whether outright or with an outstanding mortgage.

• You should have a good credit record and not stretched too much on your other borrowings, for example, credit cards.
• You may have to provide evidence of employment income or earnings from self-employment separate from rental earnings. This is typically around £25,000+ a year – if you earn less than this you might struggle to get some lenders to approve your buy-to-let mortgage.
• Lenders have a maximum age requirement which is usually around 75 years of age although some lenders may have lower age limits.
• A loan to value ratio (LTV) limit of at least 75%, so you’ll need a minimum 25% deposit for a buy-to-let mortgage.
• The amount you can borrow is based on the monthly rental you’re getting or are likely to get.
• Your rental income should cover 125% of your mortgage repayments.
• The minimum deposit is usually 25% of the property’s value (although it can vary between 20-40%).