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Understanding buy-to-let mortgages
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What is a buy-to-let mortgage?

A buy-to-let (BTL) mortgage is a specific type of loan for buying a property that you plan to rent out to other people (tenants), rather than live in yourself.

Unlike a residential mortgage, which is based on your personal income and finances for a home you'll occupy, a BTL mortgage is treated as a business loan. Lenders are mainly focused on the property's potential to generate rental income.

Getting your head around this type of finance is the first step for any aspiring landlord or property investor. This guide breaks down exactly what a BTL mortgage is, how it works, and the key costs and responsibilities you need to know about.

How does a buy-to-let mortgage work?

  • The core idea is simple: the property is an investment, not a home. Because of this, the rules for getting a BTL mortgage are very different from a standard residential loan.
  • When you apply for a residential mortgage, the lender sees the property as your home. When you apply for a BTL mortgage, the lender sees the property as a small business, an asset that needs to generate its own income.
  • This income (the rent) is the lender's main security. They need to be confident that the rent you get from tenants will be enough to cover your monthly mortgage payments, plus a bit extra for safety.
  • You cannot live in a property bought with a BTL mortgage. Doing so would be a breach of the mortgage terms, which can have serious consequences.

What are the different types of buy-to-let mortgages?

The buy-to-let market has specialist products for different investment strategies.

Standard buy-to-let

  • This is the most common type, used for buying a standard house or flat that you'll rent out to a single person, a couple, or a family under one tenancy agreement.

Limited company buy-to-let

  • A growing number of landlords buy property through a limited company structure rather than in their personal name. This is a complex area, and the mortgage is taken out by the company.
  • People often do this for tax planning reasons, but the mortgage rates and fees can be higher. This is a decision that must be discussed with a qualified tax adviser and mortgage broker.

House in multiple occupation (HMO)

  • An HMO is a property rented out by at least three unrelated people who share facilities like a kitchen or bathroom. These properties often generate more rent but are more complex to manage and are subject to extra licensing rules from your local council.
  • You need a specialist HMO mortgage to finance one, as lenders view them as a higher-risk, specialist investment.

Interest-only vs repayment

When you get a residential mortgage, you usually have a 'repayment' mortgage. This means your monthly payment covers both the interest and a small part of the original loan, so you're clear of the debt at the end of the term.

With buy-to-let, most landlords choose an interest-only mortgage.

  • How it works: Your monthly payment only covers the interest on the loan. It doesn't pay off any of the original capital you borrowed.
  • Why choose it? This makes your monthly payments much lower, which increases your monthly cash flow and profit from the rent.
  • The catch: When the mortgage ends, the full amount you borrowed will still need to be paid back. So, it’s important to have a plan in place, many landlords do this by selling the property or using savings.

Repayment (capital and interest) mortgages are still an option for BTL properties. Your payments will be higher, but you'll build equity (ownership) faster and own the property outright at the end of the term.

How interest-only works: the key differences

  Interest-only BTL mortgage Repayment BTL mortgage
Monthly payment Pays only the interest charged on the loan Pays off both the interest and a portion of the original loan (capital)
Loan balance Remains the same throughout the entire mortgage term Decreases over the mortgage term
End of term The full capital sum borrowed must be repaid in one lump sum (the "exit strategy") The loan is fully repaid off and you own the property outright

 

Who needs a buy-to-let mortgage?

You'll need to apply for a BTL mortgage if you are:

  • A first-time landlordSomeone buying their first investment property.
  • A portfolio landlordAn experienced investor who already owns other rental properties.
  • An 'accidental landlord'This is someone who needs to rent out a property they used to live in (e.g. they inherited a home or moved in with a partner). You can't just keep your residential mortgage; you must tell your lender and usually switch to a BTL product or get 'consent to let'.

Applying for a buy to let mortgage

The same as a residential mortgage, a lender will review a few things when you apply for a buy-to-let mortgage.

What will lenders look for? 

  • Deposit sizeYou generally need a minimum of 20% to 25% but this depends on the lender.
  • Your personal income
  • Your experienceAre you a first-time landlord or a seasoned investor?
  • Your credit historyYour credit score can impact your ability to be approved for your BTL mortgage.
  • The type of propertyIs it a standard flat or a specialist house in multiple occupation?
  • Expected rental incomeThis must meet the Interest Coverage Ratio (ICR).

The expected rental income is the biggest difference between BTL and residential mortgages.

With a residential mortgage, a lender looks at your salary and your personal spending. With a BTL mortgage, the lender is most interested in the property's rental income.

The rental stress test (interest coverage ratio)

Lenders use a 'rental stress test', also called the interest coverage ratio (ICR), to decide how much you can borrow.

This is a calculation to check that the expected monthly rent will cover the mortgage payment by a set margin. Lenders usually want the rent to cover 125% to 145% of the mortgage payment.

They also 'stress' the interest rate. This means they'll calculate your payments based on a higher interest rate than the one you're actually on. This is to make sure you could still afford the mortgage if interest rates went up in the future.

Here’s a simple example:

  • Your monthly mortgage payment is £800.
  • The lender's interest coverage ratio is 145%.
  • The lender will require the property to achieve a monthly rent of at least £1,160 (£800 x 145%).

Buy-to-let vs residential mortgages

It's beneficial to understand the differences between a buy to let and a residential mortgage. This table breaks down the key features side-by-side.

  Buy-to-let mortgage Residential mortgage
Property purpose An investment, to be rented our to tenants A home, for you and your family to live in
Who lives there? The landlord (you) cannot live there The borrower (you) must live there
Minimum deposit Higher: typically 20%-25% or more Lower: can start from 5%
Affordability test Based on the property's rental income Based on your personal income and outgoings
Interest rates Usually higher than residential rates Usually lower that BTL rates
Repayment type Most commonly interest-only Most commonly repayment (capital and interest)
Regulation Generally not regulated by the FCA Fully regulated by the FCA


How much could you borrow?

Unlike a residential mortgage (where the loan is a multiple of your salary), how much you can borrow on a BTL mortgage depends almost entirely on the property's investment potential. A lender will work out the maximum loan they can offer.

Here’s what they look into

  • The property's valueLenders will only lend a certain percentage of the property’s price (the Loan-to-Value, or LTV). This is typically 75% at most, meaning you’ll need a deposit of at least 25%.
  • The monthly rental incomeThe rent you're expected to get must be high enough to cover the monthly mortgage payment plus an extra safety buffer. This is the 'interest coverage ratio' (ICR) or 'stress test'.
  • Your personal circumstancesMost lenders will also check you have a minimum personal income (e.g., £25,000 a year) and a good credit history, just to be sure you can cover costs if the property is empty.

This means that even if you have a 25% deposit, you might not get a 75% loan if the property's rent isn't high enough to pass the lender's stress test. The rental income is often the deciding factor.

Try our mortgage repayment calculator to get a quick idea of what your monthly payments might look like.

Things to consider

Your mortgage is just one part of the financial picture. As a landlord, you are running a business and must budget for a whole range of different things. Take a look at our key points.

  • Stamp Duty Land Tax (SDLT) - When you buy an additional property in England or Northern Ireland, you must pay a stamp duty surcharge. This is a percentage on top of the standard SDLT rates and applies to almost all BTL purchases.
  • Landlord insurance - You can't use standard home insurance. You need specialist landlord insurance, which covers risks like loss of rent, property owner's liability, and tenant-related damage. Alongside this you may need building insurance for your property.
  • Maintenance and repairs - You are responsible for all repairs. This includes everything from a leaking tap to a new boiler. It's wise to have a separate 'sinking fund' of cash saved just for this.
  • Letting agent fees - If you don't want to manage the property yourself, a letting agent will find tenants and handle issues for you.
  • Void periods - You must budget for times when the property may be empty between tenants. You will have no rental income but will still have to pay the mortgage and utility bills.
  • Legal costs - You'll have solicitor and conveyancing fees for the purchase, just like any property transaction.

Speak to a mortgage adviser

The world of buy-to-let mortgages is complex. The best product for you depends on your personal finances, your investment goals, the type of property, and the ever-changing tax and legal landscape. This is why getting professional, independent advice is so important.

A qualified mortgage adviser can look at your entire situation, compare the specialist products available from different lenders, and guide you through the application. They can explain the true costs, help you with the affordability calculations, and make sure you're set up for a successful investment.

Complete online enquiry form

Frequently asked questions

Can I get a buy-to-met mortgage if I’m a first-time buyer?

Generally, no. Most lenders prefer you to already own a residential property. This is because they want assurance that you have a stable primary residence and that the BTL property is purely an investment. However, a small number of specialist BTL products are available for first-time buyers, but they usually come with stricter lending criteria, higher deposits, and higher interest rates.

What happens if my buy-to-let property is empty (a void period)?

 A 'void period' is when your property has no tenants, meaning you receive no rental income but are still responsible for the mortgage payments, utility bills, and all associated costs.

This is a major risk for landlords. You must have a financial reserve (a cash 'buffer') to cover all outgoings during these periods.

Taking out landlord insurance could help with this, that includes 'rent guarantee' or 'loss of rent' cover for protection against extended void periods.

Can I live in my buy-to-let property ?

Generally, no. A buy-to-let mortgage is a specific financial product designed for properties you intend to rent out as an investment, not for you to live in. Your mortgage agreement will specifically state that you cannot occupy the property as your main residence.

Do I need to use a letting agent, or can I manage my BTL property myself?

You have two options:

  1. Self-manage: You are legally allowed to manage the property yourself (often called a self-managing landlord). This saves you money but requires you to handle all aspects, including finding tenants, collecting rent, arranging repairs, and ensuring all legal compliance (e.g., safety checks, deposit protection).
  2. Use a letting agent: You can hire a professional letting agent for a fee (typically a percentage of the rent). They can offer various service levels, from finding tenants only to full, comprehensive property management.

In short: If you are local, experienced, and have the time to commit, self-managing can work. If you value peace of mind, compliance, and convenience, an agent is usually the better choice.

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

Yes, in many cases, you can. But the way you do it depends on your lender and your plans for the property.

If you want to rent out a home that currently has a residential mortgage, you can’t simply start taking tenants in. Your lender must agree to the change first. There are usually two routes:

1. Ask your lender for ‘consent to let’

This is a short-term option. Your lender allows you to rent out the property while keeping your existing residential mortgage.
It’s often used when your circumstances change unexpectedly — for example, moving in with a partner or relocating for work.
Consent to Let comes with conditions, which might include:

  • a time limit (often 6–12 months)
  • a fee or a slightly higher interest rate
  • extra checks on affordability

It’s designed as a temporary solution, not a long-term way to run a rental property.

2. Switch to a buy-to-let mortgage

If you’re planning to rent the property out for longer, your lender will usually ask you to switch to a buy-to-let product.

This is because the property becomes an investment, not your home, and the lending rules are different.

A buy-to-let mortgage will look at:

  • how much rent the property is likely to earn.
  • the type of tenants you’ll have.
  • whether the rent meets the lender’s stress-test criteria.
  • your personal income and credit history.

Switching to a BTL mortgage gives you a more suitable, long-term setup if you intend to be a landlord.