Whether you're buying your first rental property or expanding an existing portfolio, this guide explains how buy-to-let mortgages work, what lenders look for and how to find the right deal.
Buy-to-let can be a sound long-term investment. But the buy-to-let mortgage market for landlords is different from residential lending.
The lender landscape is more varied. The criteria are more layered. And the decisions you make at the start, on the rate, loan structure and lender, can affect your returns for years.
This blog is a practical guide to help you make sense of your options, whether you're buying your first rental property or revisiting an existing deal.
How buy-to-let mortgages work
The first thing to understand is that buy-to-let mortgages are assessed differently from the mortgage on your own home.
Lenders focus primarily on the rental income the property could generate, not your personal income, when deciding how much they'll lend. You must be able to demonstrate that the property can service the debt. Most landlords also opt for interest-only rather than repayment mortgages, keeping the monthly payments lower and protecting cash flow, with the intention of either selling the property or remortgaging when their deal ends.
The deposit you'll need is typically larger, too. Most buy-to-let lenders want at least 25% down, and some require more depending on the type of property or your profile as a landlord. So, if you have a bigger deposit, you'll usually be able to secure a better rate.
First-time landlord or existing portfolio… does it matter?
If you're a first-time landlord, you'll face more scrutiny than an experienced one. Some lenders won't consider you at all. Others will apply stricter rental yield requirements or cap the loan-to-value (LTV) they'll offer until you have a proven track record.
Experienced landlords with existing portfolios face a different set of challenges. Many lenders now assess your entire portfolio when you apply for a new loan, not just the individual property you're borrowing against. If your existing mortgages are stress-tested alongside the new one and the numbers don't stack up across the board, some lenders will decline, even when the new property works in isolation.
Knowing where you sit and which lenders suit your profile is one of the main reasons why you should work with an experienced buy-to-let mortgage broker with knowledge of the whole market.
What lenders look at
Lenders typically require the property's rental income, or yield, to cover 125% to 145% of the mortgage payment, depending on the lender and your tax band.
Higher-rate taxpayers face tighter stress tests due to the Section 24 tax rules, which removed the ability to offset mortgage interest costs against rental income. If you're in that bracket, some lenders will require a higher rental yield to meet their criteria.
Some lenders won't lend to landlords below a certain personal income level, regardless of how well the property stacks up on rental yield.
Houses in multiple occupation (HMOs), new-builds, ex-local authority properties and flats above commercial premises all attract restrictions with certain lenders. Some won't touch them at all. Others will, but on tighter terms.
A clean credit record opens up the broadest range of options. Any adverse credit history narrows the pool of willing lenders and, in some cases, can affect the rates they offer.
Fixed, tracker or variable?
The type of buy-to-let mortgage you choose will depend on your priorities, the size of your portfolio, and how you're planning to manage the property over the next few years.
A fixed-rate mortgage gives you certainty for the duration of the deal. Knowing exactly what's going out each month has real value. A two-year fixed rate will give you flexibility to reassess your options sooner; a five-year fixed rate reduces the frequency you'll need to remortgage, which can help if you're managing several properties at once.
A tracker mortgage moves in line with the Bank of England base rate, plus a set margin. When rates are falling, that can work in your favour. But you'll pay more when rates rise.
The standard variable rate (SVR) is what you'll move onto when a deal expires, if you don't act. It's almost never the right place to stay long-term. Lenders set their own SVRs, which typically bear little relationship to the best available deals on the market. Remortgaging when your deal ends, or before, is usually the best move.
The costs beyond the rate
The interest rate is the number that gets most of the attention, but it's a poor basis for comparing deals on its own.
Arrangement fees can vary considerably between lenders and products. A low rate with a high fee can cost more over a two-year term than a slightly higher rate with a lower fee. On a larger loan, the difference in fees can compound.
There are also valuation fees, legal costs and, depending on how you hold the property, significant tax implications to factor in. The Stamp Duty surcharge on second properties adds 5% to every transaction (above the standard rate). Rental profits are subject to Income Tax. And the phased removal of mortgage interest relief under Section 24 has changed the economics of buy-to-let for many higher-rate taxpayers.
Tax strategy is a job for an accountant. But understanding the full cost of a deal, not just the headline rate, is something an experienced buy-to-let mortgage broker can help you think through.
Why a buy-to-let mortgage broker is worth using
The buy-to-let market has more nuances than the residential market. Specialist and semi-specialist lenders sit alongside the high street names, and many of them don't appear on price comparison websites. Some won't deal with the public directly at all. High street lenders, for what it's worth, tend to have some of the most restrictive buy-to-let criteria on the market. So, defaulting to your bank is rarely the route to the best deal.
A whole-of-market buy-to-let mortgage broker like FG & Cook can match your property and your landlord profile to the lenders whose criteria will fit what you're looking for.
And researching lender criteria, stress-testing your affordability calculations and identifying which lenders are likely to look favourably on your situation is a significant undertaking on your own. We work in the buy-to-let mortgage market every day, so can do it faster and more accurately, and often access exclusive rates that aren't available through other channels.
What to have ready before you apply
The more organised you are going in, the faster the process moves. For most buy-to-let mortgage applications, you'll want to have the following to hand:
- Proof of income (payslips, SA302s, or accounts if you're self-employed)
- Existing mortgage statements, if you're remortgaging or have an existing portfolio
- Details of the rental property, including the projected rental yield, ideally supported by a letting agent's assessment
- Evidence of any existing rental income, if applicable
- A summary of any outstanding credit commitments
When you work with us, we'll tell you exactly what's needed for the lenders we target on your behalf, to help you avoid the back-and-forth that can slow things down.
Ready to find the right buy-to-let deal?
Getting a buy-to-let mortgage is rarely a straightforward process. What works for one landlord won't work for another. The right deal for you depends on your property type, your landlord profile, the size of your portfolio, your tax position and your appetite for rate risk.
At FG & Cook, our team has access to the whole buy-to-let mortgage market, and the depth of knowledge to find you the right deal for your situation. Our lead broker, Jason Cook, and our experienced advisers understand the buy-to-let market inside out, including the specialist lending landscape that most landlords never see online.
So, if you're looking to buy your first rental property, revisit an existing deal, or expand your buy-to-let portfolio, book a consultation and let's explore your options.