Best Buy-to-let Mortgages

Our buy-to-let rental yield calculator shows how much your rental yield might be based on your property's value and expected rent.

You will need a buy-to-let mortgage if you intend to borrow to purchase a property that you want to rent out– traditional residential mortgages are only for those who intend to live in the property they are buying. Mortgage lenders do not accept rented properties on a standard residential mortgage. This is because they believe there is greater risk involved with buy-to-let lending than with standard residential lending.

If you rent out your residential property on a residential mortgage then you will be breaching your mortgage contract. Your mortgage lender could repossess your home or make you repay the mortgage in full.

If you're an accidental landlord, for example because you were unable to sell your home after moving in with your partner, then you'll need to notify your mortgage lender about the change in circumstances. Some lenders may let you continue to use your residential mortgage for a while, but usually they will want you to switch to a buy-to-let mortgage immediately.

While mortgage regulations state you only need to live in a minimum of 40% of your property to be a residential mortgage, your actual mortgage contract is likely to state that any sub-letting (such as renting out a room) is not allowed. You should contact your lender to explain the situation and see if they need you to switch to a buy-to-let mortgage.

If you are renting to close family members, such as children, siblings or parents then you may not need a buy-to-let mortgage.  If you intend to rent your property to friends, then you should get a buy-to-let mortgage. It’s advisable to speak to your mortgage lender and ask what they can accept in your given circumstances, they can then decide if they need you to change your mortgage.

Yes, in most cases you will. Renting a room or your entire property through AirBnB or another property rental company will still classify your property as a rental property. If you are unsure, check with your mortgage provider.

The criteria you will need to meet for a buy-to-let mortgage is different to a residential mortgage:

• Your rental income usually must be at least 125% of your mortgage payment – this is called your rental yield
• In some cases, typically for higher rate tax-payers, you will need to generate 145% rental income or yield
• Some lenders also require a minimum income, sometimes of at least £25,000
• You will usually need at least a 20% deposit, and a larger deposit will get you a better rate
• There are often minimum age requirements, with some lenders requiring you to be at least 25 to be eligible for a loan
• Some lenders will also want you to have held a residential mortgage
• Some buy-to-let mortgages are available to first-time landlords

Some buy-to-let mortgages will not allow houses of multiple occupation and may have a maximum cap on the properties you can mortgage with them at any one time.

If you have a large buy-to-let portfolio or houses of multiple occupation, then our preferred mortgage broker can help you find the right lender for you.

You can contact your current lender to request a switch from a residential mortgage to a buy-to-let mortgage. If your lender refuses, then you can look to remortgage with another lender. In either case, if you have a fixed term mortgage with early repayment charges, then switching could result in these being applied.

Finding the best buy-to-let remortgage deal is an important part of maximising your rental income. Your current mortgage product will usually revert to a higher interest rate when your current deal comes to an end. However, you should not limit yourself to choosing from only one provider’s buy-to-let remortgage rates. Our comparison tables can help you to see the range of rates available.

You will also need to check which mortgage lenders are suitable for your buy-to-let portfolio, for example some will have a maximum number of properties you can include, exclusions on certain types of construction, and houses of multiple occupancy. Our preferred mortgage brokers can create a personalised proposal for your buy-to-let remortgage.

Currently, two-year fixed rate buy-to-let mortgages are not that much more expensive than the equivalent residential mortgages, with less than 0.25% difference in interest rates. However, longer term fixes remain around 1% more expensive for buy-to-let versus residential equivalents. Fees remain significantly more expensive, with these often £1,000 more for buy-to-let than residential equivalents.

Age restrictions are usually less strict than residential mortgages, with the ability to get a mortgage past the state retirement age of 67. You will still need to meet the minimum income requirements, and many lenders will include pension and dividends as part of this. 

There are five additional costs to consider when setting up as a landlord:

1. Letting agency fees – a basic service to find, interview and credit check tenants and a full management service, where all aspects of the property rental is handled on your behalf.
2. Landlord insurance – a specific insurance policy to cover rental properties - at the most basic level this will cover you for buildings insurance. More comprehensive policies can include cover for contents and damage, loss of rent and legal fees.
3. Maintaining your property – you will need to make sure your property adheres to all the legal safety requirements, such as maintaining gas and electric and smoke alarms.
4. Cleaning and redecorating your property – after a tenant moves out you will need to clean and possibly redecorate your property.
5. Legal and accountancy fees – these can include drafting of tenancy agreements, deposit scheme registration, setting up a limited company, or producing your annual accounts and tax returns.

It is commonplace for buy-to-let mortgages to be interest-only. This means you only pay back the interest on your mortgage loan and your monthly repayment is lower than that of a repayment mortgage. This increases the margin you can make on your buy-to-let investment.

1. Check your loan-to-value and identify potential buy-to-let mortgage rates and calculate your monthly buy-to let mortgage payment
2. Work out whether your rental income will meet the requirements of your potential mortgage lender
3. Check the true cost of your buy-to-let mortgage deal, including all fees, as well as the monthly payment, and look at the reverting rate – could you afford this if you could not remortgage in the future?
4. Decide if you need the certainty of a fixed monthly payment or are happy to take the risk of a potentially lower variable rate.
5. Select interest-only or repayment mortgage.

Currently, the best buy-to-let mortgage rates are available on mortgages with a larger deposit, such as 35%, or loan-to-value below 65%. There is little difference in the rates and fees between fixed and variable buy-to-let mortgages up to 75% LTV. However, if you have an 80% LTV buy-to-let mortgage then rates do vary and discounted variable rates are lower than fixed rate alternatives.

You'll want to look at the additional features of a buy-to-let mortgage, too, such as the incentives offered, early repayment charges and whether there's the facility to make overpayments (or similar). These incentives and additional flexibility can often be appealing, but again, make sure it works out as the best value option in the long run.

Property has long been thought of as a decent investment, particularly when compared to saving in cash, and it can even give stock market investment a run for its money. This view has been fuelled by continued house price rises in recent years, which have seen the value of bricks and mortar significantly enhanced.

It's an investment for the long-term, but when you consider the fact that returns on cash savings are extremely low once inflation is taken into account, it's easy to see why it's so popular. For many, bricks and mortar is far more secure than investing in the stock market, too, as there's less volatility and you’ve got a tangible asset in your portfolio.

However, it's important to remember that, like any investment, returns from buy-to-let aren't guaranteed. There's a slim, but ever-present, chance that your property could go down in value, not to mention the fact that if you don't enjoy 100% tenancy, your profits could be compromised, as you'd need to make the mortgage repayments out of your own pocket.

Then there are the various insurance payments and additional costs you need to consider, and that's before we get to the tax changes that have impacted the buy-to-let market of late, all of which are making it more difficult for all but unmortgaged landlords to make a profit. 

The introduction of the mortgage interest relief restriction in April 2017 has resulted in more landlords setting up limited companies to manage their buy-to-let portfolio. Landlords have chosen to become limited companies to help maintain the profitability of their portfolio. You should seek accountancy and tax advice when considering this for your portfolio.

Yes, many mortgage lenders offer buy-to-let mortgages for limited companies.

Buy-to-let mortgages are usually not regulated by the Financial Conduct Authority (FCA). Exceptions to this include consumer buy-to-let mortgages, where you rent the property to a close family member - these are assessed under the stricter rules for regulated residential mortgages. The advice and arranging of buy-to-let mortgages are regulated by the FCA.

You will need buildings insurance for your buy-to-let property. It is also advisable if your property is furnished to have contents insurance. You can also look for damage protection insurance which will cover the costs of tenants damaging your property or contents.