A buy-to-let (BTL) mortgage is specifically for properties that will be rented out. Lenders assess these differently from residential mortgages because the rental income, rather than your personal salary, is the primary source of repayment. Most lenders require the expected rental income to cover at least 125-145% of the monthly mortgage payment at a stressed interest rate.
Buy-to-let mortgages typically require a larger deposit than residential mortgages — usually a minimum of 25%, though some specialist lenders accept 20%. Interest rates tend to be slightly higher, and most BTL mortgages are offered on an interest-only basis, although repayment options are available.
You generally need to already own a property (either with or without a mortgage) to qualify for a BTL mortgage, though some lenders offer products for first-time landlords. Stamp duty surcharges also apply — an additional 5% on top of standard rates for buy-to-let purchases in England and Northern Ireland.
You want to buy a rental property worth £250,000 with a 25% deposit of £62,500, borrowing £187,500. The expected rent is £1,200 per month. The lender stress-tests at 5.5% interest, requiring rental coverage of 145%: the interest would be £859/month, and 145% of that is £1,246. Your rent of £1,200 falls slightly short, so you may need a larger deposit or a lender with less strict criteria.
Key Points
- Designed specifically for rental investment properties
- Typically requires a minimum 25% deposit
- Rental income must usually cover 125-145% of the mortgage payment
- Most BTL mortgages are on an interest-only basis
- An additional 5% stamp duty surcharge applies on purchases