Published 17th October 2017 · Updated 1st September 2023 by Martin Alexander
Our expert mortgage advisors have compiled some buy-to-let mortgage tips to help answer many of the questions we’re regularly asked.
If you need a buy-to-let mortgage and are unsure of where to start, you can browse the wealth of information on this site or speak to a specialist immediately.
What is a buy-to-let mortgage?
A buy-to-let mortgage is specifically designed for a property that is being purchased to then rent out to tenants. The lender then adds the outstanding loan as a charge on the property. This will always be done on any purchase unless you’re remortgaging, where a new charge would be raised.
The aim of a buy-to-let mortgage is to repay the loan from the rental income each month. When done correctly, the rental income should exceed your monthly mortgage payments, leaving you with a profit each month. Buy-to-let mortgages may have different rates and may require larger deposits when compared to residential mortgages.
How do buy-to-let mortgages work?
When compared to residential mortgages, buy-to-let mortgages operate in almost the exact same way. One difference, for instance, is the criteria that lenders use in assessing who they’ll lend to and how much. This is because lenders assess affordability differently between residential and buy-to-let mortgages.
Above all, the key difference in the actual mortgage is that buy-to-let mortgages can be arranged on an interest-only basis. Residential mortgages are difficult to obtain on interest-only rates and are often taken on a repayment basis instead.
Buy to let interest-only mortgages are typically preferred by landlords over repayment mortgages. The reason is that interest-only mortgages tend to be cheaper each month. This means more profits for landlords, as you’re only repaying the interest to the lender, not the loan itself.
Repayment mortgages involve repaying the interest and the loan itself. As a result, your monthly repayments will be much higher than an interest-only mortgage. The advantage of a repayment mortgage is you’ll own the property outright at the end of your mortgage term.
On an interest-only mortgage, landlords typically sell the property towards the end of the mortgage term. This is because the mortgage balance will still be outstanding. If you’re undecided about which mortgage type to go for, you may benefit from a part and part mortgage. Part and part mortgages are a combination of both repayment and interest-only elements.
Read more: What is a part and part mortgage?
How much does a buy-to-let mortgage cost?
Buy-to-let mortgages are often available with higher setup fees when compared to residential mortgages. It’s important to check the mortgage cost across the overall term. Deals that involve survey or arrangement fees in addition to your mortgage can soon add up.
Buy-to-let property is an investment, so paying attention to the figures is crucial in making your venture successful. As products and rates are always changing, there isn’t one set cost for a buy-to-let mortgage.
You can also take a look at our current buy to let deals that are updated in real time.
How much deposit will I need for a buy-to-let?
In most cases, you’ll need a 25% deposit for a buy-to-let mortgage. That being said, it is possible with a lower deposit, but it’s often advised to use at least 25% as a minimum. This is because larger deposits allow access to better rates and deals.
Larger deposits, such as 40%, typically unlock the best deals. This can significantly affect the monthly profit margins you can gain from your rental income.
Let’s give you an example of a typical buy-to-let transaction. You’ve agreed to purchase a buy-to-let property for £100,000. You’ll need a 25% deposit, which is £25,000, and a 75% LTV mortgage product.
Remember, the LTV is simply the loan-to-value of your mortgage. Also, bear in mind that your £25,000 deposit doesn’t include any other fees, such as solicitor and lender fees.
Choosing a buy-to-let mortgage rate
Mortgages come in many shapes and sizes, and buy-to-let mortgages are no different. You’ll have the choice of either a fixed-rate mortgage or a tracker mortgage.
Both mortgage types can be beneficial. There isn’t a right or wrong mortgage type, but your choice will largely depend on your appetite for risk. As the economy has been unpredictable in recent times, there are many mixed views on which rates to choose.
Fixed rates offer security, whereas tracker rates may be beneficial if interest rates fall. They can also enable you to plan and budget accordingly.
The disadvantage of fixed-rate mortgages is that they often cost more than variable-rate mortgages. Furthermore, if mortgage rates fall, you’ll be fixed into paying a higher rate until you can remortgage your buy to let.
Tracker mortgages are unpredictable, so you won’t have the security of a fixed-rate mortgage. This is because your mortgage rate could increase at any time. The advantage of fixed-rate mortgages is that if the interest rate falls, so will your repayment amount.
Tracker rates are often cheaper to obtain, and rates can sometimes be lower than fixed-rate deals. Deciding on the best type of buy-to-let mortgage ultimately depends on you and what you’ll be comfortable with. It’s important to consider all the varying factors before committing to a mortgage that suits your circumstances.
Buy-to-let mortgage tips from the experts
Read our buy-to-let tips to get a head start on your mortgage:
Should I have an interest-only buy-to-let mortgage?
Landlords generally go for interest-only mortgages. This is because monthly mortgage payments are less when compared to buy-to-let mortgages on a repayment basis. The additional monthly income can then be used to buy another property, and so on.
Portfolio landlords often use this method, and only when they have a portfolio consider buy-to-let mortgages on a repayment basis. This is so they can retain a few properties to provide an income during retirement.
Do I need a mortgage broker?
Make sure you use a broker who has access to the whole market and is experienced in buy-to-let mortgages. If you have a difficult case, such as bad credit or you’re self-employed, then you’ll most likely need a specialist mortgage advisor.
Shop around, and don’t limit yourself to your high street bank. Searching the entire market will enable you to secure the best deals with the lowest fees. This is crucial on your road to success as a buy-to-let landlord.
Check for hidden buy to let mortgage fees
Be sure to check for fees from lenders, such as arrangement fees and survey fees. Some lenders may also have hefty early repayment charges if you redeem your mortgage earlier than agreed.
Often enough, buy-to-let mortgages can be secured with great rates and extremely low fees, you just need to know where to look. That said, a mortgage with low fees doesn’t automatically make it the best deal available. Be sure to check the overall cost of the mortgage. By doing so, you’ll make sure you’re getting the best mortgage deal available.
Declined a buy-to-let mortgage?
Sometimes, mortgage applications are declined. This could be due to bad credit or insufficient employment history, but there are other reasons why lenders may reject an application. Applications are often declined simply because the lender wasn’t suitable. Furthermore, having a mortgage application that isn’t presented in the correct manner can also cause problems.
The market is full of lenders, each with different criteria. Just because one lender says no, it doesn’t mean they all will. Our expert advisors have secured mortgages for those that have previously been declined. You can always make an enquiry with one of our experts who can talk you through everything.
Find out more about buy to let with bad credit here.
How can accountants help landlords?
Speak to an accountant, as UK tax laws are forever changing. This can have a direct impact on your buy-to-let income, and a qualified accountant can demonstrate ways to structure your portfolio to gain additional tax relief.
Remember to treat your buy-to-let investment as a business to ensure the best returns. There’s certainly been an increase in landlords creating limited companies to hold property, which can sometimes be advantageous.
Learn more about limited company mortgages here.
Speak to a specialist mortgage broker
Speak to an expert mortgage advisor if you’re still unsure. Our advisors have access to the whole market and specialise in buy-to-let mortgages, even with tricky applications such as adverse credit or self-employed applicants.
With a wealth of knowledge, our friendly advisors can explain the procedure in great detail and find the best deals suited to your circumstances. You can call us now on 0800 195 0490 or make an enquiry.
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About the author
Martin Alexander
Martin is a senior mortgage advisor who has held a CeMAP qualification for over 15 years while completing an MBA in Global Banking and Finance.