What is a buy-to-let mortgage? A plain guide

A buy-to-let mortgage is a loan used to buy or refinance a property you rent out to tenants, rather than live in yourself. Lenders assess it mainly on the rent the property earns, not on your salary. Most buy-to-let mortgages are interest-only, so the monthly payment covers the interest while the original loan stays outstanding until you sell or refinance.

You can hold one in your own name or through a limited company. Loan-to-value usually sits between 65% and 75%, so you need a deposit of 25% to 35%. Indicative rates run from 4.5% to 6.5% a year, with tracker, fixed and discount options.

This guide explains how the product works, what lenders look for, and where the common mistakes happen. If you already know you want to borrow, the buy-to-let mortgages page covers how we arrange one across a panel of 100+ lenders.

How a buy-to-let mortgage works

The mechanics differ from a standard residential mortgage in three ways.

First, the income test. A residential lender looks at your earnings. A buy-to-let lender looks at the rent. The property has to pay for itself, with a margin to cover void periods, maintenance and rate rises.

Second, the repayment type. Most buy-to-let mortgages are interest-only. You pay the interest each month and the capital sits there until the end of the term, when you either sell the property, refinance it, or repay from other funds. This keeps the monthly cost lower and the focus on yield.

Third, the structure choice. You can borrow personally or through a limited company set up to hold property, often called a special purpose vehicle (SPV). The route you pick affects how the rental profit is taxed, and it is worth getting tax advice before you decide.

The rental stress test, explained

Before agreeing a loan size, lenders run an interest cover ratio (ICR) stress test. This is the single biggest thing that catches landlords out, so it is worth understanding.

The standard test asks for the rent to cover 125% of the mortgage interest, calculated at a notional stress rate of around 5.5%. That applies to basic-rate taxpayers and most limited-company borrowers. Higher-rate taxpayers are usually stressed harder, at 145% ICR.

Here is a worked example. Say you borrow £150,000. At a 5.5% stress rate the notional annual interest is £8,250. At 125% ICR the lender wants annual rent of at least £10,312, which is roughly £860 a month. If the property realistically rents for £1,000 a month, the case passes with room to spare. If it rents for £750, it fails, and you either reduce the loan, find a lender with a workable stress rate, or change the structure.

The stress rate is notional. It is a safety check, not the rate you actually pay.

What deposit and costs to expect

For a purchase, you typically need 25% to 35% of the property value as a deposit, reflecting the 65% to 75% maximum loan-to-value. On a refinance, you borrow against existing equity, so you may not need fresh cash if there is enough value in the property.

Beyond the deposit, budget for these on a typical case:

• Arrangement fee: usually 1% to 2% of the loan, sometimes added to the advance.
• Valuation fee: paid up front to a RICS valuer, indicatively £400 to £2,500 depending on property type and value.
• Legal fees: your own solicitor’s costs, typically £750 to £3,500 for standard cases.
• Broker fee: our fee model is confirmed upfront before any application, and disclosed in writing before you commit.

Every figure here is indicative. The lender confirms the final numbers on application, once it has seen the property and your file.

Who can get a buy-to-let mortgage

Most lenders want to see that you can absorb a problem if the rent stops for a month or two, so they look at your wider position alongside the rental figures. Common requirements include a minimum personal income (often around £25,000, though some lenders waive it for experienced landlords), a deposit from a clear source, and an age within the lender’s limits at the end of the term.

First-time landlords can get a buy-to-let mortgage, though the choice of lenders is narrower and the rate can be a notch higher. Limited companies and SPVs are widely accepted; in fact most new buy-to-let lending is now written into company structures for tax reasons.

If you own four or more mortgaged rental properties, you count as a portfolio landlord under the regulator’s definition. Lenders then underwrite your whole portfolio, not just the property you are buying, looking at aggregate loan-to-value, rental coverage across every property, and your track record.

Buy-to-let versus a residential mortgage

The two products answer different questions. A residential mortgage asks “can this person afford this home from their income?” A buy-to-let mortgage asks “can this property pay for itself from its rent?”

That difference flows through everything. Buy-to-let is usually interest-only where residential is usually capital repayment. Buy-to-let is underwritten on rent where residential is underwritten on salary. And a buy-to-let mortgage secured purely as an investment is not a regulated mortgage contract, which changes the rules around it. A buy-to-let secured against a property you or a close family member will live in can be regulated, so the line matters.

Frequently asked questions

What is a buy-to-let mortgage in simple terms?

It is a loan to buy or refinance a property you rent to tenants. The lender bases the loan on the rent the property earns, not your salary, and most of these mortgages are interest-only.

How does a buy-to-let mortgage work?

You put down a deposit of 25% to 35%, borrow the rest at 65% to 75% loan-to-value, and usually pay interest only each month. The capital is repaid at the end of the term when you sell or refinance. The lender checks the rent covers the interest with a margin, using a stress test.

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

Typically 25% to 35% of the property value, since maximum loan-to-value sits at 65% to 75%. On a refinance you borrow against existing equity instead, so fresh cash may not be needed if there is enough value.

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

Yes. Fewer lenders offer it to first-time landlords and the rate can be slightly higher, but it is workable, especially with a solid deposit and a clear rental figure.

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

Yes. Most buy-to-let, development and commercial finance can be structured into a limited company SPV. Whether personal name or company is better depends on your tax position, so take tax advice before deciding.

What is the buy-to-let stress test?

It is an interest cover ratio check. Lenders want the rent to cover 125% of the mortgage interest at a notional stress rate around 5.5% for basic-rate and company borrowers, or 145% for higher-rate taxpayers.

Where to go next

If you are weighing up a purchase or a refinance, the fastest way to know what is realistic is to see indicative terms against your actual numbers. Our buy-to-let mortgages page explains how we compare 100+ lenders and map your stress test before you apply.

We are a whole-of-market property finance broker. We do not lend our own money, and we sit on your side of the table rather than push one product. This guide is information, not regulated mortgage advice; a qualified adviser confirms what fits your specific case.