How to get a buy-to-let mortgage: a simple guide
5-minute read
Considering becoming a landlord or growing your property portfolio? If you’re buying a property that you want to rent out rather than live in, then you’ll probably be looking to get a buy-to-let mortgage.
Our step-by-step guide explains the process, common questions, and tips for finding the best buy-to-let mortgage rates on the market.
In this guide, we provide an overview of the following key topics:
What is a buy-to-let mortgage?
A buy-to-let (BTL) mortgage is a loan for buying a property that will be rented out to tenants rather than lived in by the owner.
Buy-to-let mortgages usually have higher interest rates and higher fees than standard residential mortgages, and the lending criteria are different.
Buy-to-let mortgage explained – five key differences
- The amount you can borrow for buy-to-let depends mainly on the projected rental yield (instead of your income). The expected monthly rental income usually needs to be at least 30 per cent higher than your monthly mortgage payment.
- Buy-to-let mortgages usually have substantially higher arrangement fees than residential mortgages. Fees tend to be around £1,000 to £5,000.
- Most buy-to-let mortgages are interest-only, which means you only pay the interest each month rather than paying down the debt, and when you sell the property you repay the capital in full.
- While homeowner mortgages are regulated by the Financial Conduct Authority (FCA), most buy-to-let mortgages aren’t. This is because they’re seen as business transactions.
- You may need to own a home already and have been paying your mortgage problem-free for at least 12 months to be approved for a buy-to-let mortgage.
How to get a buy-to-let mortgage
From eligibility to applications and getting a mortgage offer, these are the steps you need to follow:
1. Can I get a buy-to-let mortgage?
Your bank will review your mortgage application based on buy-to-let mortgage criteria. These vary depending on the lender, but include things like age restrictions and a minimum annual income (usually around £25,000).
Barclays has a buy-to-let mortgage calculator you can use to check how much you might be able to borrow and how much your monthly payments might be. You’ll need to fill in details about your income and outgoings here. Download our budget template to get a clear picture of your personal finances.
2. Get an agreement in principle (optional)
You might want to get an agreement in principle before you start your buy-to-let mortgage application. This tells you how much a bank might be willing to lend you, without affecting your credit score.
Sometimes known as a ‘mortgage in principle’, this is a useful gauge if you’re still early on in the house hunting process and are wondering how much money you’ll have for a property. It also shows estate agents you’re a serious buyer.
Bear in mind though, the agreement in principle is only valid for 90 days.
3. Contact your bank
The next step is to speak to a bank or mortgage broker to find the best mortgage deal for you. You can book an appointment with them to talk through buy-to-let mortgage rates, affordability, and the different products.
This meeting will kick-start your mortgage application process.
4. Apply for your mortgage
Your mortgage broker or bank will start your mortgage application when you have your first mortgage meeting.
You’ll need to give them lots of information about your finances and the property you want to buy. Existing landlords will also need to show bank statements that show rental income from any other properties.
5. Wait for your mortgage offer
It usually takes between two to four weeks for a mortgage offer to come through. In that time your bank will complete a full credit check and instruct a valuation of the property you want to buy.
Buy-to-let mortgages: how is affordability calculated?
Banks will look at how much rental income you’re likely to make from the property when deciding whether to approve your mortgage application. This is different from residential mortgages, which are based on salary and outgoings.
To help you decide if your property is going to be a good investment, you can estimate rental yield. This is based on how much income you expect to generate in rent every year, as a percentage of the property’s value.
Location is an important factor when it comes to affordability and rental yield. Here are some of the best buy-to-let areas in the UK and the best areas in London for rental yield if location is no object in your property search.
Read our comprehensive guide to buy-to-let mortgage affordability for more information.
How much deposit do you need for a buy-to-let property?
Unless you’re a cash buyer then you’ll need to arrange a mortgage. And that means you’ll need a deposit.
A buy-to-let mortgage deposit is usually about 25 per cent of the property’s value – and typically higher than the five to 10 per cent deposit you need for a house you plan to live in.
Buy-to-let mortgage deposit example
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.
Is interest-only or repayment best for buy-to-let?
You have two options with a buy-to-let mortgage: repayment or interest-only.
A buy-to-let interest-only mortgage means you’ll only pay off the interest each month, so you’ll take home a larger proportion of the rent from your tenants.
A repayment mortgage means you’ll be paying off the amount you owe, plus interest, over the time period agreed in your mortgage.
Both have their pros and cons, but many portfolio landlords choose interest-only mortgages to boost their rental profit. This just means you'll need to pay off the outstanding balance at the end of your mortgage term.
This article is intended as a guide only. Please get advice from a banking and finance expert if you’re not sure of anything.
How to find the best buy-to-let mortgage rates
Make sure you get the best mortgage rate by following these tips:
- shop around – there are lots of comparison websites out there to help you find the right mortgage product for you
- speak to a mortgage broker – they can offer expert financial advice, help you find a deal that suits your financial circumstances, and often access more products
- choose between a fixed and a variable rate of interest – a fixed rate is usually for two, three or five years while a variable rate can go up and down
- check your credit score – and try to improve it if you need to
Who are the best buy-to-let mortgage providers?
When shopping around to find the best buy-to-let mortgage rates, you’ll come across a selection of providers.
Some buy-to-let mortgage providers are mainstream lenders while others specialise in BTL.
Here’s an overview of some of the BTL mortgage providers to look out for:
- West One – a specialist lender that offers portfolio lending up to £7.5 million with no minimum income requirements
- Halifax – one of the UK’s best-known lenders offers a range of two and five-year buy-to-let products
- Landbay – a buy-to-let-only lender that offers fixed and tracker buy-to-let mortgages for standard purchases as well as HMOs
- Barclays – a traditional lender that offers products for up to £2 million for each property
- Paragon – a specialist lender that borrowers can only access through an intermediary. It provides products for single properties, HMOs and limited companies
- Lloyds Bank – a traditional lender that offers a range of two and five year products with a maximum loan value of £1 million
- Aldermore – a specalist lender that allows borrowers to include multiple properties on one buy-to-let mortgage application
- The Mortgage Works – the buy-to-let arm of the Nationwide Building Society that offers deals up to 10 years with a maximum LTV of 80 per cent
- HSBC UK – a traditional lender that offers buy-to-let products up to 75 per cent LTV with a minimum deposit of 25 per cent
Can I change my existing mortgage to a buy-to-let?
Some landlords start out through chance and circumstance. If you’re moving out of your home but want to keep your property then you might be thinking about letting it out.
The good news is it may be possible to change your existing mortgage to a buy-to-let mortgage. You’ll just need to speak to your mortgage provider and meet their criteria. Sometimes this means you’ll need to remortgage first, which can involve early repayment charges.
Looking for a buy-to-let mortgage? Let us know how you get on in the comments.
More guides for buy-to-let landlords
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Written by
Catriona Smith
Catriona Smith is a content and marketing professional with 12 years’ experience across the financial services, higher education, and insurance sectors. She’s also a trained NCTJ Gold Standard journalist. As a Senior Copywriter at Simply Business, Catriona has in-depth knowledge of small business concerns and specialises in tax, marketing, and business operations. Catriona lives in the seaside city of Brighton where she’s also a freelance yoga teacher.
We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer
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