Buy to let mortgage interest rates and lender criteria

A buy to let mortgage is different from a standard residential mortgage for your own home. Buy to let refers to buying residential property so that it can be rented to paying tenants.

Additional lending criteria and rules apply to buy-to-let mortgages. The most obvious difference between a residential mortgage and one for BTL is how affordability is calculated.

A rental income and interest rate stress test helps to determine how much you can borrow for buy to let. For residential mortgages the applicant status and personal income is key to lender decisions on how much you can borrow

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Useful links:

What HMO mortgages are available?

Limited company mortgages

Buy to let mortgage calculator

Frequently asked questions

Buy-to-let mortgages are based rental income, rather than personal income

Buy-to-let borrowing is based on the rental income-generating potential of a property.

Even with low personal income, as long as the rental income sufficiently covers your mortgage interest payments, there are lenders who will consider your mortgage application.

Compare buy to let mortgages

  • Compare mortgage rates and deals from a large range of lenders 
  • Compare deals for your requirements
  • You can check buy to let remortgages

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. 

Rental income and mortgage affordability checks

This is a very important part of mortgage lending for buy-to-let. If the rental income will not cover mortgage repayments, a lender is unlikely to offer you a loan.

To show that you can afford a mortgage, the rent must exceed the monthly mortgage repayment, by a given percentage.

This is because lenders must loan money with due care to the borrower.

To do this, lenders look at a hypothetical scenario, where the repayment is higher. If it is still affordable to the borrower, the deal will pass the affordability check.

Rental cover / initial coverage rate

Lenders calculate how much the rent must exceed the repayment. This is the “rental cover” or “initial coverage rate”.

Calculating rental cover for a buy to let mortgage

If your monthly repayment was £448, your rental income would need to be at least £650 to meet rental coverage of 145%:

  • £448 x 145% = £650

Which lenders offer mortgages for buy-to-let borrowers?

Over 80 lenders provide buy-to-let mortgage finance, some of the more well known ones are;

High Street Banks

Building Societies

Specialist Lenders

Barclays

Leeds

Aldermore

Santander

Skipton

The Mortgage Works (TMW)

NatWest

Cambridge

Precise Mortgages

Virgin

Buckinghamshire

Kent Reliance

Halifax

Accord

Mercantile Trust

Buy-to-let stress rate lender test

Mortgage lenders also use a “stress rate” for buy-to-let affordability calculations.

This means replacing the real rate of repayment with a more expensive one in the calculation.

This gives lenders a formula to help ensure they are responsible with their lending.

The PRA set this rate for the lenders they regulate at 5.5% in a wide range of circumstances. It may be lower if the deal is for a like-for-like remortgage, or if the mortgage is a 5-year fixed rate.

Additionally, buy-to-let lenders who are not PRA regulated are not bound by this rule.

Calculating your maximum borrowing

Calculating the greatest amount you can borrow can be tricky. The following calculation will give a basic idea:

  • (Annual rent ÷ 145%) ÷ 5.5% = most you can borrow

This may look very confusing.

To break this down with an illustrative example; if the monthly rent for your property is £650, the total annual rent is £7,800:

  • Divide this by 145% rental coverage to get £5,379
  • Divide this by 5.5% ‘stress rate’ to get £97,806
  • So, based on a rent of £650, using this calculation, the most you could borrow is £97,806

Comparing different rates for a buy-to-let mortgage

When you are compare buy-to-let mortgage rates you can consider the following:

The initial rate and period

APRC (Annual Percentage Rate of Charge)

The reverting rate (rate of repayment after any initial period)

The LTV required for the mortgage

The lender fee

Early repayment charges (ERC’s)

Buy-to-let deposits need to be at least 20% of the property value

Buy to let mortgages need larger cash deposits than owner-occupiers. The most any lender will agree to lend is 80%, leaving the borrower to cover the remaining 20%. (This is an 80% loan to value, or LTV, mortgage.)

Not all lenders allow borrowing up to 80% LTV. Most lend 70–75% of the property value. And if you want to qualify for mortgages with the lowest interest rates, you will usually need to borrow no more than 60%.

60% LTV mortgages are more suitable for risk-averse investors who prefer a larger equity buffer.

Between the lower interest rate and smaller loan size, they also allow investors to keep their monthly payment costs down. And if your eventual goal is to have an unencumbered property, 40% of equity gives you a good start.

What is the best mortgage?

People often want to know what the ‘best’ buy-to-let mortgage is. This is often based on the idea that the lowest interest rate equals best buy-to-let mortgage.

It is vital to consider your goals and aims when comparing mortgages. Shopping around for the lowest initial rate rarely identifies the right product.

Low rate deals may come with expensive lender fees that may not make them cheaper in the long run. Low rate deals often come with strict mortgage criteria which may not be a good fit.

Finding the best buy-to-let mortgage for you actually means establishing:

  • What you want from renting property

(e.g. An investment that will become a career? A supplementary income? An investment for your savings? )

And then how the following affects achieving that goal:

  • Your personal circumstances
  • Your financial circumstances
  • The property(ies) you will invest in

Frequently asked questions

What is the criteria for a buy to let mortgage?

  • You must be 18 years of age, or older
  • You will need a deposit
  • New landlords must have a deposit of at least 20% of the property value
  • Experienced landlords must have a deposit of at least 15% of the property value
  • The rental of your property must exceed the monthly mortgage payment amount
  • You must not have been made bankrupt in the last 12 months
  • You must not have been in or discharged from an Individual Voluntary Arrangement (IVA) in the last 12 months
  • You must not be in, or have settled, a debt management plan in the last 12 months
  • Your tenants must not be family members
  • Your property may be subject to a minimum Energy Performance Certificate (EPC) rating

A wide range of investors can secure a buy to let mortgage. We can help:

  • First time buyers, with no other property
  • Homeowners investing in their first buy to let
  • Experienced landlords with one or several properties
  • Portfolio landlords with a wide range of properties

Some buy to let lenders do not set a maximum applicant age. If you are retired, you can still get a buy to let mortgage. Securing a buy to let mortgage in retirement is subject to wider criteria, as any application is.

If you are 60 or 70 years old you can get a buy to let mortgage. If you are 75 years old, or more, you still may be able to get a buy to let mortgage.

Buy to let mortgages are always subject to a range of factors. As long as you are older than 18 years old, you age, on its own, will not stop you getting a buy to let mortgage.

Can I get a buy to let mortgage with no income?

Some buy to let lenders will accept applicants whose only income is from rental property.

We also work with lenders who do not have a minimum income threshold. This means that even if you have a very low income, we can help you.

If a lenders has no minimum income rule, they may still want you to prove the income you do receive. (E.g. rental, pension, full, part-time or self-employment).

If you have a high levels of savings and do not need to work, we can also help.

Some lenders do impose a minimum personal income requirement of £18,000 - £25,000. Large numbers of lenders do not ask for a specific amount in personal income.

Buy to let mortgage loan to value

80% loan to value is the maximum a landlord can borrow. You will need buy to let experience to borrow this much. So, you will need at least a 20% deposit.

75% loan to value is the most a new landlord can borrow. So, you will need at least 25% of the property value as a deposit.

How much can I get on a buy to let mortgage?

The good thing about a buy to let mortgage is that the loan amount is based on the rental income of the property, not your personal income.

This is one of the key differences between a buy to let mortgage and a mortgage on for your own home.

Buy to let mortgage lenders will require the rent to exceed the monthly mortgage payment. The amount the rent must exceed the mortgage payment differs by lender and product.

We can help you borrow the maximum possible, based on your circumstances.

How many buy to let mortgages can I have?

There is no limit to the number of buy to let mortgages any one landlord can have.

Some lenders will limit the total number of mortgages you can have with them. Others will limit both the number of mortgages and the overall amount of money you can borrow.

The other restriction a lender may place is the number of buy to let mortgages you have with all lenders you are borrowing from across your portfolio.

With such a range of lenders in the marketplace, there are a number of options to consider.

How much can I borrow for a buy to let mortgage?

Lenders have criteria on how much money they will lend. Maximum loan amounts range from no limit, to a capped amount of hundreds of thousands, or millions, of pounds.

The amount you can borrow is determined by the rental income your property will make.

So, whilst a lender may be prepared to give you a loan of up to £2,000,000 (for example), if the rent the property will make does not support this level of lending, the loan amount will be smaller.

Can you get a buy to Let mortgage as a first-time buyer?

You can get a buy to let mortgage as a first-time buyer. There are a number of buy to let mortgage lenders who will lend to first-time buyers.

The lender must be satisfied that a first-time buyer is not going to live in a buy to let property. This is because you cannot live in a property that is funded by a buy to let mortgage in your name.

Can you get a buy to let mortgage with a deposit of less than 25%?

Landlords can get a buy to let mortgage with a deposit of less than 25%. Experienced landlords can take out a buy to let mortgage with a 15% deposit.

New landlords can take out a buy to let mortgage with a 20% deposit.

Lenders who offer low deposit buy to let mortgages will have other criteria you will have to fit.

What makes you eligible for a buy-to-let mortgage?

There are lots of factors that affect your buy to let mortgage eligibility.

The fundamentals are:

  1. Do you have a deposit?
  2. Will the rental income cover and exceed the mortgage payments? (i.e. can you afford a buy to let mortgage?)

Beyond this, your choice of mortgage will come down to finding a great deal that matches your wider needs and circumstances.

Buy to let mortgage lenders each select the type of borrower they want to lend money to.

Some landlords or potential rental property investors fear they will be ineligible for a mortgage. Whereas, other than particularly extreme circumstances, there may be a lender to suit.

Significant and/or recent bad credit can stop you getting a buy to let mortgage. For example, bankruptcy.

However, if you were bankrupt several years ago and are now in a good financial position, it may be possible to secure a buy to let mortgage.

Some investors even use a buy to let mortgage to consolidate and pay off other debts. This may be helpful to do, if the payments on a buy to let mortgage are cheaper than repaying debt elsewhere.

If you have special circumstances that may affect your mortgage eligibility, talk through the details with a specialist and they can advise you.

In a lot of scenarios a mortgage solution can be found, but your choice of options may be wide or narrow, depending on your circumstances.

Should I get a repayment or interest only buy-to-let mortgage?

If you want to own your property outright, at the end of the term, you should get a repayment buy to let mortgage.

Repayment buy to let mortgages pay back both the lump sum you borrowed, the ‘capital’. Repayment mortgages also pay off the interest a lender charges you for borrowing the money.

All mortgages set out a period of time over which you want to borrow the money for. This is called the ‘term’ of the mortgage.

Repayment buy to let mortgages mean you own the property at the end of the term.

Interest-only buy to let mortgages only pay back the interest the lender charges. You will not repay the lump sum you borrowed.

If you have an interest only buy to let mortgage, you have to repay the lump sum you borrowed another way.

You can repay the lump sum borrowed with a mortgage by taking out a new mortgage, with savings, or by selling the property.

Can I afford a buy-to-let mortgage?

Buy to let mortgage affordability is based on the rent. So, you need to find out how much rent you can charge.

Property portals may help you look up similar properties, to see how much rent is being charged.

Be realistic about the similarity between two properties. If the physical size of the property is the same, but one property has a garden and the other does not (for example), the rent you can charge may be different.

To meet mortgage affordability calculations, the monthly rent must be more than the monthly mortgage. This is because lenders must ensure a mortgage will still be affordable for you, if the financial circumstances changed.

How can I compare buy to let mortgages?

There are lots of buy to let mortgage comparison tables available online.Sometimes the results displayed may be organised in a certain way, this should be disclosed on the site you are on.

The mortgage comparison table on our website displays products from a wide range of lenders, by default they are organised by lowest initial rate.

There are limitations to using a comparison table. They cannot tell you if you are eligible for the mortgages you are looking at, base on lender criteria.

A specialist mortgage broker should prevent you from having to try and compare buy to let mortgages. A broker should ask you everything needed to find a mortgage that meets your objectives. It should also represents the best deal available, within those parameters.

Some lenders will not lend direct to a consumer. They will require that you secure a mortgage through an ‘intermediary’ – a mortgage professional.

A few buy to let lenders will only lend when they are working directly with the borrower.

For this reason, a broker cannot claim to have access to the whole of the buy to let mortgage marketplace.

Commercial Trust works with around 80 lenders, representative of the buy to let mortgage marketplace. This means we will identify a mortgage from thousands on offer.

The only reason we will select the mortgage we recommend to you, is because we have worked to establish it is the best deal for you.

Can I change my mortgage to a buy-to-let?

Yes. If you are moving out of your residential home so you can rent it out, you can switch from a residential mortgage to a buy to let mortgage.

You can also switch onto a buy to let mortgage and increase your borrowing, so you raise capital for the deposit to buy another residential house. This is called “let to buy”.

Are buy-to-let mortgage interest rates different from residential rates?

Yes. Buy to let mortgage rates are different from residential rates. They are different types of product, with different criteria.

Can I get a normal mortgage and rent out a property?

You cannot get a standard, residential mortgage on a property that you will rent out indefinitely.

If the property is your home and you want to rent it temporarily, you can ask your lender to give you ‘consent to let’. There may be an additional cost associated with this.

Why can’t I get a residential mortgage and rent out the property?

Taking out a residential mortgage and renting out the property, without permission from your lender, is likely to breach the terms and conditions of your mortgage.

Is a buy-to-let mortgage cheaper than a standard mortgage?

In the past, buy to let mortgages rates used to be higher than residential mortgage rates.

At the moment, buy to let mortgages are available at historically low rates. So, the gap between buy to let mortgage rates and residential mortgage rates is narrower.

Buy to let mortgage rates are usually a little higher than residential rates.