How Much for Buy-To-Let Mortgage Deposit?

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Getting a mortgage in order to become a landlord is becoming more popular. Being able to buy a second home for the sole purpose of renting it out is a profitable and attractive option for many homeowners. There’s lots to a buy-to-let mortgage, like how much is a buy-to-let mortgage deposit and how are the interest rates. In this guide, we will walk you through everything you need to know about buy-to-let mortgages.


What Is a Buy-To-Let Mortgage?

A buy-to-let mortgage is a special type of mortgage offered to prospective landlords who want to buy a property they can then rent out. Buy-to-let mortgages are normally offered to people who have already bought their own home and have a reasonable steady income and so don’t benefit from first-time buyer schemes. Buy-to-let mortgages are typically more expensive and have higher interest rates.

What Are the Features of a Buy-To-Let Mortgage?

A buy-to-let mortgage works the same way as a conventional mortgage but since they are catered to people have already a certain amount of wealth, they tend to be a bit harder to apply for.

  1. Interest Rates
    Whereas the interest rates for standard mortgages are typically between 3-5% tend to be from 5-6%. You will usually be able to find different deals depending on whether you fix your mortgage for a period of time or not.
  2. Buy-To-Let Mortgage Deposit
    The deposit on a buy-to-let mortgage is usually much higher than a first standard mortgage. Whereas often you can find even 5% deposits for first-time buyers, for a buy-to-let mortgage deposit you’re looking at between 25-40%.
  3. Repayments
    Buy-to-let mortgage repayments are normally interest-only. This means that over the term of the loan, you’ll only pay the interest you owe every month rather than the principal of the loan. You’ll pay the principal at the end of the loan.
man thinking

Who Is Eligible for a Buy-To-Let Mortgage?

Since the buy-to-let mortgage deposit is typically very high, the eligibility is often quite difficult. Most banks and mortgage lenders will have their own criteria for giving you a buy-to-let mortgage, but generally they’ll require you to have a good income and credit score.

What Are the Most Common Criteria?

The most common criteria you’ll need to meet if you want to get a buy-to-let mortgage are the following:

  • You already own a home
  • Strong credit history
  • Under the age of 70
  • You want to invest in property

Do You Need a Minimum Income for a Buy-To-Let Mortgage?

You will also need to have a minimum income to be able to get a buy-to-let mortgage. This is usually to show to a lender that you can both pay off the interest on the loan and also be likely to make final payment at the end. In most cases, you should have an annual income of at least £25,000 to £30,000 before you can be considered for a loan.

money and wallet

Is Buy-To-Let Worth It in 2022?

The housing market has been very turbulent in the last few years. The pandemic has been responsible driving up the prices of mortgages, and the current bout of inflation has prompted the Bank of England to raise interest rates, making mortgages more expensive. However it is perfectly possible to take out a buy-to-let mortgage at the time time if you feel the opportunity is good for you.

Advantages of a Buy-To-Let Mortgage

There are lots of advantages still to a buy-to-let mortgage. The majority of these will allow you to benefit from your long-term investment:

  • Tax benefits
    You get a few tax benefits if you have a buy-to-let mortgage after you’ve done your tax return. You are able to claim tax back on your interest repayments, repairs and other fees if you’ve paid for them yourself. You also don’t pay council tax as your tenant will do that.

  • Investment Profit
    As a buy-to-let mortgage is a property investment, the goal is to make returns in the long-term. You might benefit from some short-term gains in terms of rent payments, but ultimately the real returns are in the future, for example if the value of your property goes up and you can seek to remortgage.

  • Strong Rental Market
    The demand for rental property is still quite high and, since mortgages are getting more expensive due to the interest rate hikes, it’s unlikely to get better. A stronger rental market gives you good security for moving forward with a buy-to-let mortgage.

Disadvantages of a Buy-To-Let Mortgage

There are also a range of disadvantages when it comes to buy-to-let mortgages. They can be a lot riskier for lenders and borrowers alike so you should consider the possible problems you may come across if you take out a buy-to-let mortgage:

  • Tenant Issues
    Renting out to tenants can cause problems for your mortgage repayments if your tenants fall behind on their payments. In addition, damage to the property through the actions of tenants can cause the value of the freehold to drop.

  • Landlord Responsibilities
    Being a landlord is hard work and you often have a lot of responsibilities to your tenant. You’ll need to put together both a tenancy agreement and an inventory checklist as well as take out insurance to protect the property.

  • Periods of No Rent
    You should also prepare for periods of no rent if the property is left vacant. It’s very unlikely that you’ll have tenants who will want to stay for the full term of your buy-to-let mortgage and it might not always be easy to find tenants quickly.

  • Higher Stamp Duty
    You will also face higher stamp duty when it comes to buy-to-let mortgages. Whenever you buy a property, you usually have to pay the stamp duty tax on top of your purchase. In the case of buy-to-let mortgages, stamp duty can have an extra 3% on the property’s value.

Future complications are a commitment from the UK government to increase the availability of high loan-to-value mortgages for first-time buyers. This is part of the plan to end ‘Generation Rent’.

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How Much Can I Borrow for a Buy-To-Let Mortgage?

The amount you are allowed to borrow for your buy-to-let mortgage is based on the then rental income you will be expecting to charge each month. This is because this will be your main source of financing the mortgage over the long term, and it will need to be around 30-40% higher than you mortgage repayments in order to ensure you can pay for it.

How Is a Buy-To-Let Mortgage Calculated?

A buy-to-let mortgage is calculated differently from a standard mortgage. Since the add component of the expected rent payments due from renting out the buy-to-let property, the calculation gets a little more complicated.

Buy-to-let mortgage example Say for example you want to buy-to-let a property valued at £250,000. You have enough to put down for both a deposit and to cover other fees and expenses. You’ve also planned for a monthly rental income of £1,200 a month.

In this case, what you have and need are the following:

Property Value = £250,000
Yearly Rental Income = £1,200 x 12 = £14,400
On this, you can expect to borrow around £198,620 (79% loan-to-value) with a 21% deposit of £52,500.

Say you are charged a fixed rate of 1.27% over 25 years, your payments will be:

Interest-only Repayment = £33,300.85 ÷ 25 years = £111.01 a month
Final Principal Repayment = £198,620

Other factors will also influence how much you can borrow such as you credit score and salary so you can negotiate with your mortgage lender if you need to borrow more.

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Where Can I Get a Buy to Let Mortgage?

Buy-to-let mortgages are available from most banks and mortgage lenders and you should comparison sites to work out which one will give you the best deal. Buy-to-let mortgages work in a similar way to a standard mortgage, with an initial fixed-period of 2 to 5 years that becomes as variable rate afterwards.

What is APRC? To compare two rates to see how good a mortgage is in the long term, you should look at the Annual Percentage Rate of Change (APRC). This is like an average of the interest rate over the full term of your loan and it is the most efficient way to compare two different mortgage rates.

Best Places for a Buy-To-Let Mortgage

Here’s a table showing the best lenders to get a buy-to-let mortgage from compared with one another. Do shop around for a buy-to-let mortgage to find yourself the best rates and terms for you.

Showing buy-to-let mortgage rates on a 2-year fixed with a LTV of £150,000 and a 25% deposit

Lender Fixed-Rate Variable Rate APRC
The Mortgage Works 2.79% 5.74% 5.6%
HSBC 2.94% 5.10% 5.0%
Barclays 3.04% 5.74% 5.5%
Metrobank 3.09% 5.25% 5.2%
Coventry 3.10% 4.89% 4.8%

Showing buy-to-let mortgage rates on a 2-year fixed with a LTV of £150,000 and a 25% deposit
Last Updated: 22/07/2022


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