Low deposit buy to let mortgages

You can get a low deposit buy to let mortgage by putting down a minimum of 15% of the property value. However, you may not need a cash deposit at all, if you own other property you can borrow against.

To clarify on both points above, there are a huge array of buy to let mortgage products in the marketplace. Each product has its own terms and conditions, or ‘criteria’ that have to be met to be successful in being accepted by the lender.

The minimum deposit currently available, which has been the case for many years, is 15% of the property value. So, if you were buying a rental property worth £250,000, you would need to put down £37,500 as a buy to let deposit.

If you do not have this money in cash, there are other ways you could raise it. Say you own the property you live in, with or without a mortgage, you may be able to raise the funds for a deposit from available equity in the property.

Similarly, if you own another rental property, you could raise a buy to let deposit for another purchase from that too.

Low deposit buy to let mortgage rates

Find out today’s mortgage interest rates, with a low deposit buy to let mortgage. Input the value of the property you have in mind and the amount you want to borrow (based on a deposit of at least 15%).

You can select “Limited company / SPV” if you are investing via a company, as opposed to investing in your personal name, if applicable.

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How do I get a buy to let mortgage with no deposit?

To get a buy to let mortgage with no deposit, as described above, you need to borrow against or ‘leverage’ equity in another property.

You could remortgage your other property, to release available equity in it to use as a buy to let deposit. This is called remortgaging to “release capital”.

Second charge mortgages are another way of raising a buy to let deposit from a property you own.

A second charge mortgage sits alongside any existing borrowing (e.g. a mortgage) on a property. The advantage of a second charge mortgage, is that your primary borrowing doesn’t need to be changed.

This is beneficial if you are still with the deal period of your mortgage, meaning you are subject to paying “early repayment charges” (ERCs) if you remortgage.

Alternatively, you might have a low rate mortgage you don’t want to touch.

Clearly remortgaging to raise a buy to let deposit, or taking a second charge mortgage to do so, extends your overall borrowing, so it should be done with appropriate caution and only if it is affordable for you.

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How much do I need for a first time buy to let?

If you don’t own other property you can borrow against and your only route to securing a deposit for a first time buy to let is to raise the cash, then you will need at least 15% of the property value.

  • For example, if the property you are interested in is worth £180,000, you would need at least £27,000 to achieve a 15% deposit.

Be aware that interest rates may vary a lot, within a fairly small variance in deposit amount. Rather than borrowing with a 15% deposit, if you could raise an additional 5% to get to a 20% deposit, then you may find interest rates are a lot lower.

Bear in mind that there are other costs when investing in buy to let. These include legal fees and mortgage product fees. Where you are not borrowing at the maximum loan to value threshold, some fees can be added to the loan amount with some lenders.

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Should I get a buy to let with a low deposit?

Getting into property investment for the first time may mean you have no choice but to use a low deposit buy to let mortgage.

Similarly, even if you are investing in a second, third, fourth or fifth property, you may only be in a position to raise a small buy to let mortgage deposit.

Typically, the more you put down as a deposit, the lower the mortgage interest rates are. This is because the more you put down, the more risk you are taking on in the agreement with the lender.

There is no reason why you shouldn’t invest in buy to let with a low deposit, but there are pro’s and con’s to consider.

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Pro’s and con’s of investing in buy to let with a low deposit

One thing to bear in mind is that, if property prices fall and you have only put down a small deposit, you are more at risk of falling into negative equity - where the property value falls below the amount you paid for it.

To explain this point, if you bought a property worth £200,000 with a 15% deposit of £30,000, you would owe the lender £170,000.

If the property value fell to £154,000, you would be at 110% loan to value, putting you in negative equity. This would prevent you remortgaging unless you could find extra money to top up your borrowing with.

If you bought the same property worth £200,000 but with a bigger deposit of £69,000, you would owe the lender £131,000.

If the property value fell to £154,000, you would be at 85% loan to value, so you would not be in negative equity and, there are buy to let mortgages available at this loan to value threshold so you could still remortgage (if this scenario played out at the time your mortgage renewal date came around).

Ultimately, as long as the mortgage is affordable for you, there is nothing to stop you investing in buy to let with a low deposit, nor is there anything wrong with doing so.

Taking out a buy to let mortgage with a low deposit can be beneficial, as it might allow you to invest in two or more properties rather than just one. By doing that, you have three rental income streams, which could mean the total income you receive exceeds the amount you would have achieved from just one property.

Investing in multiple properties rather than one could also lessen the financial impact on you, if you have a period when a tenant moves out and one of your properties is empty with no rent coming in.

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FAQ’s

Can you get a buy to let mortgage with a 15% deposit?

Yes, you can get a mortgage with a 15% deposit. These deals have been available for some time, and it has long been the case that 15% is the minimum amount required for a buy to let mortgage (meaning you could not borrow with 5% or 10% of the property value, unless you had another property you could use as a deposit).

During the Coronavirus pandemic, 15% deposit buy to let mortgages were temporarily unavailable, but came back into the market after lockdown.

Can you get a buy to let mortgage with a 20% deposit?

Yes, you can get a buy to let mortgage with a 20% deposit. It is worth comparing mortgage interest rates at different deposit amounts, because you might find that 5% extra on your deposit at each deposit threshold makes a big difference to the mortgage interest rates available to you.

Can you get a buy to let mortgage with a 5% or 10% deposit?

No, you cannot get a buy to let mortgage with a 5% or 10% deposit, unless you have other property you can borrow against to get at least 15% of the property value together a deposit.

Remember, there are other costs associated with a buy to let mortgage than just the deposit, and also wider costs associated with managing a rental property.

So, if you are struggling to raise funds for a deposit, it might be better to wait until you can save up a larger amount, or look at investing in a lower value property so that your deposit amount constitutes a larger percentage of the property value.

Investing in a lower value property does not necessarily mean the yield you achieve is less than a bigger, more expensive property.

Do you have to put down a 25% deposit on a buy to let mortgage?

No, you can invest in rental property with as little as 15% deposit, or even no cash from your pocket at all, if you can raise a deposit by borrowing against other property you own.

Many websites talk about needing a 25% deposit for a buy to let mortgage, because it is at this threshold where a larger number of lenders offer buy to let mortgage deals. Whereas, once you reduce your deposit to 20% or 15%, there are fewer deals on offer from fewer lenders.

As a general rule, interest rates do become lower the more you put down as a deposit, which is likely to mean the monthly mortgage payment becomes lower as a result. The maximum amount of deposit you put down, at which point rates don’t tend to go any lower is 40% of the property value.

Speaking to a specialist broker, who can access the full range of deals on offer from across the marketplace, will mean you get a clear picture of the deals available to you and their associated monthly costs.

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Understand your investment position when investing in a buy to let mortgage with a low deposit

To have a chat with our mortgage advisors, call on the freephone number at the top of the page – there are no phone menus, you will get straight through to a buy to let mortgage expert.

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