Buy-to-Let Mortgages Explained:

Buy-to-Let Mortgages Explained

A Straightforward Guide for First-Time Landlords

If you’re thinking about buying a property to rent out, one of the first things you’ll come across is something called a buy-to-let mortgage. If you’ve never dealt with one before, it can feel confusing, especially as they work quite differently from a standard residential mortgage.

I speak to people every week who are interested in property investment but aren’t sure where to start. This guide explains, in plain English, what a buy-to-let mortgage is, how it works in the UK, and what lenders usually look for.

What Is a Buy-to-Let Mortgage?

A buy-to-let mortgage is a mortgage specifically designed for properties that you plan to rent out, rather than live in yourself.

Unlike a residential mortgage, which is based mainly on your salary, a buy-to-let mortgage is assessed largely on the rental income the property is expected to generate. Lenders want to see that the rent will comfortably cover the mortgage payments.

Buy-to-let mortgages are commonly used by:

• First-time landlords

• Experienced property investors

• People building a rental portfolio

• Landlords purchasing through a limited company

  

How Buy-to-Let Mortgages Work in Practice

Most buy-to-let mortgages in the UK are set up on an interest-only basis. This means your monthly payments cover the interest, and the original loan amount is repaid at the end of the mortgage term, often through the sale of the property or other investments.

Key things to be aware of:

• You’ll usually need a minimum 25% deposit

• Interest rates are typically higher than residential mortgages

• Lenders charge arrangement fees more frequently

There are repayment options available too, but interest-only remains the most common choice for landlords focused on cash flow.

How Buy-to-Let Mortgages Differ from Residential Mortgages

This is an important distinction and one that often catches people out.

Buy-to-let mortgages:

• Are based on rental income

• Require larger deposits

• Are designed for investment properties

Residential mortgages:

• Are based on your personal income

• Are for homes you live in

• Cannot usually be used for rental properties

Using the wrong type of mortgage can cause serious issues with your lender, so it’s vital to get this right from the start.

What Do Lenders Look At?

Every lender is different, but most UK buy-to-let mortgage providers will consider the following:

Rental Income

Typically, lenders want the rent to cover 125%–145% of the mortgage payment, calculated using a stressed interest rate.

Deposit and Loan-to-Value

Most buy-to-let mortgages require at least a 25% deposit, although lower loan-to-value ratios often mean better interest rates.

Your Financial Position

Even though rental income is key, lenders will still look at:

• Your credit history

• Existing financial commitments

• Property ownership or landlord experience

Buy-to-Let Mortgages Through a Limited Company

Many landlords now choose to buy rental properties through a limited company, often for tax planning reasons.

Buy-to-let mortgages are available for limited companies, although they can involve:

• Slightly higher interest rates

• More detailed underwriting

• Personal guarantees from directors

Whether this route is suitable depends on your wider financial position, not just the mortgage itself.

Risks to Consider Before You Apply

Buy-to-let can be rewarding, but it’s important to go in with your eyes open. Some key risks include:

• Periods without a tenant

• Rising interest rates

• Maintenance and compliance costs

• Changes to tax or housing regulation

That’s why I always encourage clients to view buy-to-let as a long-term investment, not a short-term gain.

Is a Buy-to-Let Mortgage Right for You?

A buy-to-let mortgage can be a powerful tool if it’s structured correctly and aligned with your goals. The right option depends on your deposit, expected rental income, tax position, and future plans.

If you’d like to talk through how buy-to-let mortgages work in your situation, I’m happy to help.

👉 You can book an appointment with me at Well Financial to get personalised advice and explore your buy-to-let options in more detail. There’s no obligation, just clear, practical guidance to help you make confident decisions.

TL: DR FAQ

Buy-to-Let Mortgage FAQs

What is a buy-to-let mortgage?

A buy-to-let mortgage is a mortgage designed for properties that are rented out rather than lived in by the owner. In the UK, lenders assess these mortgages mainly on the rental income the property can generate, rather than just your personal salary.

How much deposit do I need for a buy-to-let mortgage?

Most UK lenders require a minimum deposit of 25% for a buy-to-let mortgage. In some cases, a higher deposit can help you access better interest rates and a wider choice of lenders.

How much rent do I need to qualify for a buy-to-let mortgage?

Typically, lenders want the expected rental income to cover 125% to 145% of the mortgage payment, calculated using a stressed interest rate. This is known as the rental coverage ratio and helps ensure the mortgage remains affordable if rates rise.

Can first-time buyers get a buy-to-let mortgage?

Yes, first-time buyers can get a buy-to-let mortgage, although the choice of lenders may be more limited. Some lenders prefer applicants with previous homeownership or landlord experience, which is why advice is particularly helpful for first-time landlords.

Is a buy-to-let mortgage interest-only?

Most buy-to-let mortgages in the UK are interest-only, meaning monthly payments cover the interest rather than the loan itself. Repayment options are available, but interest-only is commonly used to support rental cash flow.

Can I live in a property with a buy-to-let mortgage?

No. A buy-to-let mortgage is not designed for owner occupation. Living in the property would usually breach your mortgage terms. If your plans change, it’s important to speak to a mortgage adviser before taking any action.

Are buy-to-let mortgages more expensive than residential mortgages?

Buy-to-let mortgages generally have higher interest rates and larger fees than residential mortgages. This reflects the increased risk lenders associate with rental properties.

Can I get a buy-to-let mortgage through a limited company?

Yes, buy-to-let mortgages are available for UK limited companies and SPVs. These mortgages often involve slightly higher rates and additional checks, and directors are usually required to provide personal guarantees.

Do I need to be a higher-rate taxpayer to get a buy-to-let mortgage?

No. Your tax band does not usually determine whether you can get a buy-to-let mortgage. However, your tax position can affect how profitable buy-to-let is for you overall, which is why it’s important to consider mortgage and tax planning together.

Should I speak to a mortgage adviser about buy-to-let?

I always recommend it. Buy-to-let mortgages are more complex than residential mortgages, and criteria vary significantly between lenders. Speaking with an adviser can help you avoid costly mistakes and find a mortgage that fits your plans.

👉 If you’d like tailored advice, you can book an appointment with me at Well Financial to discuss your buy-to-let options in more detail.