Do I need a buy-to-let mortgage?

A buy-to-let mortgage is a way to borrow money when you have an investment property that you want to rent out. If you’re planning to rent out a property that you don’t own outright, you’ll need a buy-to-let mortgage. Lenders do offer deals for both first-time landlords and 'accidental' landlords, but the rules can be complicated, so it’s good to get to grips with the basics before you start shopping around for deals.

• Lenders consider a buy-to-let mortgage to be higher risk so you might need to meet additional conditions to qualify for one. 
• Some lenders make it a condition that you already own your own home, whether outright or with a mortgage. 
  
• You should have a good credit record and not stretched too much on your other borrowings, for example, credit cards. 
  
• You might have to provide evidence of employment income or earnings from self-employment separate from any rental earnings. This is typically around £25,000+ a year. If you earn less than this, you might struggle to get some lenders to approve your buy-to-let mortgage. 
  
• Lenders have a maximum age requirement, which is usually around 75 years of age. You might find that some lenders have lower age limits. 
  
• You could be asked for a loan to value ratio (LTV) of at least 75% to be approved for a buy-to-let mortgage. This means you’ll need a minimum of 25% of the property’s cost as a deposit or in equity. 
  
• The amount you can borrow is based on the monthly rental income you’re getting or are likely to get. Your rental income should cover 125% of your mortgage repayments. For example, if your mortgage costs you £800 a month, you’ll need to receive at least £1,000 each month in rent. 
  

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Most buy-to-let mortgages are interest-only. This means that your monthly payment is only the interest on the loan and you won’t repay the ‘capital’ like you would with a repayment mortgage. This means that the total money you owe never decreases. 

This can be helpful in the short term as the monthly payments will be smaller than if they were on a repayment mortgage, so you'll be able to lower your monthly outgoings. When it comes to the end of your mortgage term, you’ll need a plan to pay back the loan in full. 

Want to understand the key differences between an interest-only and a repayment mortgage? We explain how they work in detail in our guide Ways of repaying an interest-only mortgage.

While many landlords want to buy a lot of flats and houses to rent out, some find themselves becoming landlords by chance. Accidental landlords often end up getting a buy-to-let mortgage because they want to keep hold of a property they aren’t living in.  For example, you might have inherited a property, moved in with a partner, or moved back to the rented sector.  

No matter how or why you've now become a landlord, you must tell your mortgage lender if you're going to let out a property that has an owner-occupier mortgage. 

Buy-to-let properties carry greater risks for lenders, so if you don't tell your bank you could be invalidating your mortgage. 

Some lenders will grant you a 'consent to let' on your current deal, while others may insist on you switching to a buy-to-let mortgage. 

If your current lender declines your request for ‘consent to let’ or won’t let you switch to a buy-to-let mortgage, a remortgage with a new lender may be an option. Depending on your mortgage term, there can be early repayment charges if you do this.

Most of the big banks and some specialist lenders offer buy-to-let mortgages. It’s a good idea to talk to a mortgage adviser before you take out a buy-to-let mortgage, as they will help you choose the most suitable deal for you. 

Learn more, including where to find an adviser, in our guide Mortgage advice: should you use a mortgage adviser?

Comparison websites are a good starting point for anyone trying to find a mortgage tailored to their needs. 

Here are some popular websites for comparing mortgages: 

• MoneyfactsOpens in a new window
  
• MoneySuperMarketOpens in a new window 
  

Remember: 

• Comparison websites won’t all give you the same results, so make sure you use more than one site before deciding 
  
• It’s also important to do some research into the type of product and features you need before making a purchase or changing supplier  
  
• Don’t just look at the interest rates offered on the mortgage, there are often other upfront fees and charges involved.
  

Learn more about getting the most out of comparison websites.

Don’t assume your property will always have tenants. There will almost certainly be ‘voids’ when the property is unoccupied or rent isn’t paid and you’ll need to have a plan to keep up with your mortgage payments. 

When you do have rent coming in, use some of it to top up your savings account. You might also need savings for major repair bills. For example, the boiler might break down, or there might be a blocked drain.

Don’t fall into the trap of assuming you’ll be able to sell the property to repay the mortgage. If house prices fall, you might not be able to sell for as much as you had hoped. If this happens, you’ll be left to make up the difference on the mortgage.

Now that you are a landlord you will likely be getting extra income from rent, and if you don’t live in the property, there are other taxes you should think about when you come to sell it.  

The income you receive as rent is treated as taxable income and you might owe Income Tax on it. You will need to fill out a Self Assessment tax return for the tax year your rental income was earned in. Keep track of any expenses like letting agent fees, property maintenance costs and any Council Tax you pay when you’re between tenants. When you submit your Self Assessment tax return, you can enter these expenses which could reduce the amount of tax you owe.  

If you sell your buy-to-let property for profit, you’ll usually pay a tax called ‘Capital Gains Tax’. This is essentially a tax on the profit when you sell any asset, including a property. You don’t usually have to pay this if you’ve always lived in a property. To find out more about your tax-free allowance and how much you might have to pay, read the GOV.UK page about Trusts and Capital Gains TaxOpens in a new window