Buy-to-let (BTL) mortgages are specifically designed for people who want to buy a property and rent it out to tenants instead of living in it themselves.
If you’re considering property as an investment, or want to start letting out your property, you need to know how buy-to-let mortgages work. We’ve got you covered – read on for everything you need to know about buy-to-let mortgages.
What is a Buy-to-Let Mortgage?
A buy-to-let mortgage is a type of loan used to purchase residential property that you plan to rent out. These mortgages are typically aimed at landlords or aspiring landlords, whether they are individuals or part of a limited company.
This type of mortgage comes with different lending criteria, tax implications and risks when compared to your typical residential mortgage.
Features of a Buy-to-Let Mortgage
- Higher deposit requirements (usually 20-30% of the property value)
- Interest-only or repayment terms
- Rental income must usually cover 125 -145% of the mortgage payments
- Typically higher interest rates than residential mortgages
- Arrangement and product fees may be higher
- Stamp duty is higher
How Do Buy-to-Let Mortgages Work?
Buy-to-let mortgages work similarly to standard mortgages in the sense that you borrow money to purchase a property. However, the key difference is that you are lending money to pay for a property to rent it out to tenants instead if to live in yourself.
Here’s how they work:
- You’ll need a deposit of at least 20-30%. Some lenders may ask for more depending on your financial situation and the property.
- Most landlords choose an interest-only mortgage. This means you pay the interest per month and repay the full loan at the end of the mortgage term. This keeps monthly payments to a minimum.
- Unlike residential mortgages, where lenders assess your salary and personal income, buy-to-let lenders will examine the potential rental income from the property. They’ll usually require that rental payments cover at least 125% of the mortgage repayments.
- Your lender will stress test your application to make sure you can afford repayments if interest rates rise. Some lenders also set a minimum personal income threshold (although rental income is the main focus).
- Buy-to-let mortgages come with higher interest rates and other costs such as arrangement fees, as they are often seen as ‘high risk’ by lenders
- You can’t utilise helpful first-time buyer schemes such as Help-to-Buy with buy-to-let mortgages
If you have a complex financial history or have struggled with credit in the past, check out our guide to getting a mortgage with bad credit for more tailored advice.
Can I Switch from a Residential to a Buy-to-Let Mortgage?
Yes, you can switch from a residential mortgage to a buy-to-let mortgage if your circumstances change. However, you must do so with your lender’s consent. Renting out your property without explicit permission could breach the terms of your mortgage agreement.
This typically involves remortgaging to a dedicated buy-to-let product. Learn more about remortgaging and how it works here.
Your lender might also offer a Consent-to-let – a temporary arrangement. This is when your lender gives permission for you to temporarily rent out your property despite having a residential mortgage. This might be a good choice if you are temporarily relocating for work, for example.
Do Buy-to-Let Mortgages Cost More?
Yes, buy-to-let mortgages are more expensive overall. There are additional costs involved with this type of mortgage as they are considered a higher-risk mortgage product. You can expect to pay a higher deposit, increased arrangement fees, and higher interest rates.
In some cases, you may be required to pay a deposit as high as 40%. This is a huge contract to the typical 10% expected with residential mortgages.
Here’s a quick breakdown of the costs you can expect to pay with a buy-to-let mortgage compared with a residential mortgage:
| Cost Type | Residential Mortgage | Buy-to-Let Mortgage |
| Interest Rates | Lower – often more competitive | Higher due to increased risk for lenders |
| Deposit Requirement | Usually 5%–15% | Typically 20%–40% |
| Arrangement Fees | Often a flat fee (£500–£1,500) | Can be a percentage of the loan (1%–2%) or higher flat fees |
| Stamp Duty | Standard residential rates | Additional 3% surcharge for second homes/investment properties |
| Tax Relief on Interest | No longer applies for residential | Restricted – can no longer deduct full mortgage interest |
| Maintenance & Letting Costs | N/A | Must budget for repairs, letting agent fees, insurance, etc. |
Do I Pay More Tax with Buy-to-Let?
You do pay more tax with buy-to-let properties. Here are some tax considerations with buy-to-let:
- You’ll pay Income Tax on rental income
- You may also pay Capital Gains Tax when selling a buy-to-let property
- Stamp Duty is higher for second homes and investment properties
However, the good news is that you can deduct certain allowable expenses – like letting agent fees, maintenance costs, and mortgage interest – from your rental income for tax purposes.
Lending Restrictions to Be Aware Of
Restrictions can vary from lender to lender. Lenders might have rules or restrictions on:
- Minimum property value (e.g. £50,000+)
- Property type (e.g. no student lets, HMOs, or holiday lets)
- Minimum rental yield or income
- Whether you’re a homeowner or experienced landlord
Our expert brokers at JG Mortgage Services LTD can help you understand and navigate these rules – and find lenders that match your circumstances.
How Much Can I Borrow for a Buy-to-Let Mortgage?
It depends on factors such as your income, the projected rental income, and the property value. Lenders usually require your predicted rental income to cover around 125% to 145% of your mortgage repayments. This gives them reassurance that you can keep up with payments even if interest rates rise or the property is vacant for short periods.
Many lenders also have a minimum personal income requirement, often around £25,000 per year.
A mortgage broker can provide you with tailored advice on how much you can borrow based on your personal circumstances. This is something we can help with at JG Mortgage Services LTD – contact us for more information.
How Many Buy-to-Let Mortgages Can I Have?
You can have as many buy-to-let mortgages as you need. There’s no legal limit to how many buy-to-let mortgages you can have. However, be aware that each lender may set its own rules.
Some lenders limit you to 3–5 mortgages, while others might specialise in portfolio landlords and offer you tailored deals if you have multiple properties. It all starts with an offer. Learn more about making an offer on a house here.
Can I Live in My Own Buy-to-Let?
No – you can’t live in a property that you purchased with a buy-to-let mortgage. If you intend to live there, even temporarily, you’ll need to switch to a residential mortgage or request a consent-to-let if you already have one.
Living in your buy-to-let without letting your lender know could breach your mortgage agreement and lead to serious consequences.
Ready to Start Your Buy-to-Let Journey?
Whether you’re a first-time landlord or expanding your property portfolio, we’re here to help. At JG Mortgage Services, we’ll guide you through the process and find the right buy-to-let mortgage to suit your goals.
Explore our buy-to-let mortgage services and speak to an expert today.
