Thinking about becoming a landlord but don’t know where to start?
Buy-to-let property can be an attractive way of building a long-term investment portfolio, potentially providing rental income, capital growth and an asset that can be held for many years.
However, buying your first investment property is very different from buying your own home.
You need to understand how buy-to-let mortgages work, how much deposit you need, what lenders look for, how to assess rental income and property prices, and how to choose an area where the numbers make sense.
This guide explains the basics of getting a buy-to-let mortgage and how beginners can start researching their first investment property.
Important: This article is intended as general educational information rather than personal financial, mortgage, tax or legal advice. Mortgage criteria, tax rules, property regulations and investment conditions can change, so obtain professional advice before making a purchase.
What is a buy-to-let mortgage?
A buy-to-let mortgage is a mortgage specifically designed for purchasing a property that you intend to rent to tenants rather than live in yourself.
Buy-to-let mortgages operate differently from standard residential mortgages.
One of the biggest differences is that the lender will usually consider the expected rental income from the property when assessing whether the mortgage is affordable.
MoneyHelper explains that lenders commonly assess whether expected rent covers a required percentage of the mortgage payment. Depending on the lender and product, rental cover requirements can be around 125% to 145%.
For example, if a lender requires rental income of 125% of the mortgage interest and the relevant monthly mortgage payment is £800, the property might need to produce at least £1,000 per month in rent for the lender’s calculation.
The actual calculation varies between lenders, so you should not assume that every lender will assess the same property in the same way.
How much deposit do you need for a buy-to-let?
One of the first questions most new investors ask is:
“How much money do I need to buy my first rental property?”
As a general rule, you should expect to need a larger deposit for a buy-to-let property than you might need for a typical residential mortgage.
MoneyHelper says that some buy-to-let mortgages may require around 25% deposit, although some 80% or 85% loan-to-value products can be available in certain circumstances.
For example:
| Property Price | 25% Deposit | Mortgage |
|---|---|---|
| £150,000 | £37,500 | £112,500 |
| £175,000 | £43,750 | £131,250 |
| £200,000 | £50,000 | £150,000 |
| £250,000 | £62,500 | £187,500 |
| £300,000 | £75,000 | £225,000 |
But your deposit isn’t the only money you need.
You should also budget for:
- Stamp Duty
- Solicitor’s fees
- Mortgage broker fees
- Mortgage arrangement fees
- Survey and valuation costs
- Property refurbishment
- Furniture, if required
- Insurance
- Letting agent fees
- Licensing costs where applicable
- A contingency fund for unexpected repairs
- Void periods when the property isn’t occupied
This is why a beginner shouldn’t simply save enough money for the deposit and assume they are ready to buy.
Can a first-time landlord get a buy-to-let mortgage?
Yes.
You don’t necessarily need to own an existing rental property before applying for a buy-to-let mortgage.
There are lenders that cater for first-time landlords, although eligibility criteria vary considerably.
Some lenders may also have requirements relating to your personal income, existing home ownership, age, credit history and overall financial position.
MoneyHelper notes that some lenders require borrowers to already own their own home and that some may look for employment or self-employment income separate from rental income.
This is one reason why speaking to a specialist buy-to-let mortgage adviser before you start making offers can be worthwhile.
A broker can establish which lenders are likely to consider your particular circumstances.
What do mortgage lenders look at?
When you apply for a buy-to-let mortgage, the lender will typically want information about both you and the property.
Factors can include:
1. Your income
Some lenders have minimum personal income requirements.
This can be particularly important for new landlords who don’t yet have an established rental portfolio.
2. Your credit history
A strong credit history can make accessing mortgage products easier.
Before applying, check your credit reports and make sure the information held about you is accurate.
3. Your existing borrowing
Lenders may consider mortgages, loans, credit cards and other financial commitments.
4. Your deposit
The bigger your deposit, the lower your loan-to-value ratio may be.
However, using more cash as a deposit isn’t automatically the right strategy. You also need to consider whether retaining some capital for refurbishment, emergencies and future investments would be beneficial.
5. Expected rental income
The lender will usually assess whether the anticipated rent is sufficient to meet its rental coverage requirements.
6. The property
Not every property will necessarily be suitable for every buy-to-let mortgage.
The lender may consider the property type, value, location, condition, lease length for leasehold properties and other factors.
Interest-only or repayment mortgage?
Many buy-to-let mortgages are arranged on an interest-only basis.
With an interest-only mortgage, your monthly mortgage payments generally cover the interest rather than paying down the original capital.
For example:
£150,000 mortgage at 5% interest
Approximate interest-only payment:
£625 per month
A repayment mortgage would normally have a higher monthly payment because you would also be repaying some of the capital.
Interest-only lending can therefore improve monthly cash flow, but the original mortgage balance remains outstanding.
That means you need a credible strategy for repaying or refinancing the mortgage at the end of the term.
MoneyHelper highlights this as an important consideration when using interest-only buy-to-let finance.
MoneyHelper highlights this as an important consideration when using interest-only buy-to-let finance.
How to find the right buy-to-let mortgage
Don’t automatically choose the mortgage with the lowest headline interest rate.
You should look at the complete cost and terms of the mortgage.
Consider:
- Interest rate
- Fixed-rate period
- Arrangement fee
- Valuation fee
- Early repayment charges
- Maximum loan-to-value
- Rental stress requirements
- Minimum income requirements
- Maximum property value
- Maximum portfolio size
- Whether the lender accepts first-time landlords
- Whether the lender accepts limited companies
- Whether the lender accepts HMOs
- Whether the lender accepts flats
- Minimum lease length
- Overpayment rules
A specialist buy-to-let mortgage adviser can compare lenders based on your circumstances.