Buy-to-Let Mortgages Explained
A buy-to-let mortgage is a specialist mortgage designed for landlords who want to purchase property to rent out. They differ from residential mortgages in several key ways:
- Larger deposit required — typically 25% minimum
- Higher interest rates than residential mortgages
- Affordability based partly on expected rental income (typically 125–145% of interest payments)
- Usually taken on an interest-only basis
- Subject to the 3% stamp duty surcharge in England
- Income from the property is taxable
The Rental Stress Test
Most buy-to-let lenders use a rental stress test to determine how much you can borrow. The rental income must cover 125% to 145% of the monthly mortgage interest payment (at a stressed rate, usually around 5–6%, even if your actual rate is lower).
For example, on a £150,000 buy-to-let mortgage at 5.5% interest: Monthly interest = £687.50. At 125% coverage: Minimum monthly rent needed = £859. At 145% coverage: £997.
Buy-to-Let vs Residential Mortgage
You cannot use a standard residential mortgage for a property you intend to let. Doing so would be mortgage fraud. If your circumstances change and you want to let a property you currently live in, you should apply to your lender for "consent to let" or remortgage onto a buy-to-let product.