The minimum buy-to-let mortgage deposit you’ll need for an average sale is around 25 per cent of the property’s value. Read our article to understand your options, exceptions to the rule and the key things to consider when stumping up your buy-to-let deposit.
Once you’re finished with this article, take a look at the articles below for more on buy-to-let mortgage deposits and landlord admin.
The rules around buy-to-let mortgages may be similar to those for regular mortgages (like the one you probably have on your own home), but there are differences, including how the deposit will work. This is because a buy-to-let mortgage presents a bigger risk to the lender, and therefore securing one will be more expensive for you, at the outset.
In general, lenders will ask for a bigger deposit from a prospective buy-to-let mortgage customer. They may also charge more interest, and assess your application in a different way, with different criteria.
The minimum deposit needed for mortgage arrangements on buy-to-let is usually 25 per cent of the property’s purchase price. This does vary, often between the 25-40 per cent mark.
Property purchase price = £285,000
25% deposit = £71,250
To secure this property as a buy-to-let you’d also need to charge monthly rent at around 25-35 per cent more than your mortgage payments.
New-build properties are often treated as ‘riskier’ by lenders, and you may need a minimum of 35 per cent deposit on one of these.
Some lenders do offer specific deals on mortgages that have been secured with a higher deposit. Fixed interest rates tend to be very low for buyers with a big deposit, but they also come with big fees and charges, so it’s best to speak to a broker, take them through your situation and work out what’s best, rather than going for a short-term gain.
When it comes to buy-to-let, lenders tend to prefer healthy deposits, strong rent prospects and a great financial situation (earnings and record), all with the view of keeping your buy-to-let mortgage covered.
Even if the minimum deposit required for buy-to-let is around 25 per cent of the property’s value, many buyers will need (or choose) to put down more. There are a few options on the lending market that require less, but these are rare and very specific.
In 2015, The Mortgage Advice Bureau released data revealing that the UK’s average buy-to-let deposit had hit £100,000, up 15 per cent on the 2014 figures. The 2017 data isn’t yet published, but this gives you an idea of the recent national average.
Edge cases, personal circumstances, and lucky days all exist, but for the vast majority of prospective investors, 10 per cent deposit arrangements on buy-to-let properties are a thing of the past. Your best option is research, speak to a trusted broker and understand what makes a good, secure and affordable arrangement, in the current market.
With average prices in the capital dropping slightly to £471,761 in September 2017, a rough calculation will help you find the minimum deposit needed for a buy-to-let mortgage.
The minimum deposit required by lenders is around 25 per cent of the property’s value, so based on average prices above, you’d be looking at a deposit of around £117,940.
However, this doesn’t factor in London affordability, rental yields or individual lender criteria. And with headlines full of increasing demands for 40 per cent deposits since 2016, you can expect to put down a lot more, in the capital.
Every mortgage comes with an age limit, set by the lender. There may be fewer mortgages available as you get older, but deals and arrangements are definitely available for buyers aged 60 and over.
Because buy-to-let mortgages carry more risk anyway for the lender, it can take a bit more searching to find the right deal. If you’re retired, you’ll also need to show regular income from things like investments and pension, to prove that you can afford the monthly payments.
At Simply Business we’re non-advisory, but we do like to keep you up-to-date with the latest in buy-to-let property news, helping you invest in and manage your properties effectively.
We also recommend a regular check on sites like the Mortgage Advice Bureau, who have a good news section which regularly features buy-to-let news and updates. You can find them here.
Remember to seek expert advice before making any financial decisions.
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