Buy to Let Mortgages

What is the difference between a Buy to Let mortgage and a Residential mortgage?

Simply put, one is loan for an investment property and the other is a loan for a home the owner and their family to live in.  As a Buy to Let mortgage is an investment that allow the borrower to potentially generate income as well as capital gain, the lenders tend to charge a higher rate.  Fees and minimum deposit required is higher as well.  However, due to the current low rate environment buy to let rates are only marginally higher than residential rates.  

A residential mortgage is purely based on the income of the applicants, while a buy to let mortgage is based primarily on rent received.  However, some lenders require the applicants to have some personal income so that they won’t rely on rent alone for living (unless you are a professional landlord with a portfolio of properties).

Another difference is buy to let mortgages are not regulated by the FCA whilst residential mortgages are.  However, all advisers need to be qualified to operate in the mortgage market and authorised by the FCA

Buy to let (BTL) mortgages are for those looking to invest in property.  Investing in property can be for many reasons.  Some are looking to generate an income and for some, capital gain for the future as an alternative to a pension.  

BTL property market has been boosted as the affordability of owner occupier mortgages have fallen due to income lagging the house price inflation.  Hence, many residential FTBs /homebuyers have been priced out of the property ladder.  Therefore the demand for rental property has risen dramatically as more look to rent rather than to buy.  

What deposit do I need for a Buy to Let mortgage?

Deposit required can vary from lender to lender.  Minimum deposit required for a Buy to Let mortgage currently (June 2021) is 15% from a specialist lender.  Average deposit is 25% to get a good rate.  Like with residential mortgages higher the deposit lower the rate.  

Other factors that can affect the deposit is minimum income requirements, rent and your credit status / score as they will affect which lender you can apply to.  

So for an investor it is a balance between using up their cash for different investments or having lower monthly payment and better return.

Can you get a 100% buy to let mortgages?

It can depend on circumstances.  

It is not possible to get a 100% lending i.e. without a deposit for a standard buy to let purchase.  The minimum deposit is currently is 15%.  Majority of buy to let lenders in the market require 25% deposit.  Lower the deposit higher the rate.

However, there are circumstances where the mortgage can turn out to be 100% of purchase price or price paid. Such as buying under value with a gifted deposit.  An example is buying from a family member where part of the equity is gifted to the buyer. 

Other circumstances are distressed sales or when a property is developed. Loans under these circumstances are short term loans or bridging loans from specialist lenders.  If a property is bought under value some lenders will lend based on the market value rather than the actual purchase price.  May be 65% – 70% of market value.  A property that require renovation or development can acquire loans based on Gross Development Value (GDV).  That is the projected value in the future after upgrading, at similar percentages.  So the lender will lend purchase price and cost of development. 

Do you need a job for a buy to let mortgage? 

Yes and no.  A regular source of income is required, rather than a specific job. It could be investment income, pension, rental income and even some types of benefits that can be used to prove income.  Lenders need to know you can support yourself independently rather than from rental income alone in the event there are periods where the property cannot be rented.  

Professional landlords can use tax returns on the rent as proof of income.  

An income is not required for Lifetime Mortgage style buy to lets.  Where the loan is based on property value and rent.  These types of loan are only available to over 55s and the maximum percentage or loan to value is lower than for a standard buy to let.  

Evidence Required for income

  • Latest pay slips.
  • Sole traders: SA302: HMRC tax calculation & tax overview or accountant’s certificate from qualified accountant.
  • LTD Co Directors: Tax calculation & tax overview or accountant’s certificate.   Company’s accounts may also be required.
  • See our self employed section for self employed income documents requirement.

What income will be used for affordability

Sole traders.

  1. net profit for taxation i.e. before personal allowance

Limited Company Directors have 3 options.

  1. Salary + Dividends.
  2. Salary + net profit after corporation tax.
  3. Gross profit or retained profit. Some lenders will consider gross profit instead of salary + dividends if there is year to year consistency.

Not all lenders accept all options.  Therefore, lenders available will differ which option is selected.

Covid-19 – Due to the affect of restrictions currently, lenders will request additional information from self employed and furloghed applicants.  

Self Employed will need to provide answers to following.

  1. Is the business currently trading and what affect has covid restrictions had on income.
  2. Has the business taken government sponsored grants or funding.  If so it will be a detrimental to most applications.
  3. Bank statements for last 3 months show income received.
  4. How has the business managed to overcome the restrictions. 
  5. Income considered is lower of the last 2 year’s net profit.
  6. Importantly: mortgage holidays on personal home will have no affect on applications. 
Can I get a buy to let mortgage without minimum income?

There are two types of lenders.  Those who require a minimum income and those that don’t.  Minimum income can vary from lender to lender.  So it will depend if you qualify for all the lenders.  Some high street lenders require minimum income of £25,000.  Some will accept £20,000 and others, as low as £16,000.  

Then there are other lenders who does not need a minimum income, but require some level of personal income.  

An income is not required for Lifetime Mortgage style buy to lets.  Where the loan is based on property value and rent.  These types of loan are only available to over 55s and the maximum percentage or loan to value is lower than for a standard buy to let. 

Can I pay interest only on a buy to let mortgage?

Payment of the loan on a Buy to let can be both interest only or capital repayment, just like with a residential mortgage.  Lenders are less strict on the repayment method for a buy to let loan, allowing interest only payment to be widespread with BTLs.  Most lenders only allow capital repayment on a standard residential mortgage (except when the LTV is low).

Can I get a buy to let mortgage at age 70 or what is the maximum age to get a buy to let mortgage?

With many lenders, the maximum age to get a buy to let mortgage is age 85.  So you are able to get a buy to let mortgage in retirement whether you are 70, 80 or 85.  However, the term may be restricted.  Longer with the lower age. 

However, there is one lender who will allow a standard buy to let mortgage without a maximum age and term.  This is only for those with a high credit score, but will lend up to 75% LTV.

Another option for those looking for a standard buy to let at older age without the lifetime mortgage option, is to use a limited company structure to buy a let property.  With a Ltd Company buy to let there is no max age or term.  

The lender may also need to see some level of income.  If there is no income, there is the option of using a lifetime buy to let mortgage where the loan is based on rent and equity.

Is it illegal to live in buy to let property? 

It will depend on your circumstances.  If you obtain a buy to let property and immediately move in, most lenders will consider that as a breach of mortgage conditions, as well as potential fraud as they have been misled.  The lender might require immediate repayment of loan and instigate repossession of the property.  However, if it’s due to some unforeseen personal circumstance at a future date, the lender may allow permission for someone to occupy their buy to let property. 

An example would be, a married couple who own a residential and a buy to let property. Sometime in the future, they divorce and the properties are split between the two.  One might be able take up residence in the buy to let with lenders consent.  

The real reason lenders keep a watchful eye on the use of property is due to people misusing mortgage schemes.  Buy to let mortgages are primarily based on rent and not on income.  There are many examples where those with insufficient income or with undeclared income for tax or ill-gotten gains, obtain properties under the guise of a buy to let and use them to reside in.  This is called a ‘backdoor residential’.  People with insufficient income obtaining a residential mortgage through the buy to let route by lying on an application is considered fraud. There are many examples where mortgage fraudsters have been prosecuted and jailed.  

Can a first time buyer who is a non-homeowner get a buy to let mortgage? 

Yes it is possible.  There are lenders who will allow non-owner occupiers to buy an investment property.  But it can depend on both the income and rent, as well as personal circumstances.  As explained on the above section (if illegal to live in a buy to let property) lender needs to be satisfied the purchase is a genuine investment rather than a backdoor residential.  So they will carry out a sense check .  This can include:

  1. The loan restricted to the income multiple the applicant can borrow for a standard residential mortgage, such as 4.5x income. 
  2. How far the property is from the current residence.  If it is close by, there might be a possibility that the applicant will move in.  
Can a non-owner buy a let property with a homeowner? 

Yes.  A first time buyer buying a buy to let with another homeowner is acceptable to most lenders more than a non-owner first time landlord.  There are no restriction on loan limit other than rent. 

Can I rent my buy to let property to a family member?

No you are not allowed to do that.  It is possible to obtain a property to rent to a family members.  It is called a regulated buy to let mortgage.  This will allow you to rent to an immediate family member, such as parents, grandparents, children and siblings.  However, the lending will be based on income rather than rent.  All regulated mortgages are based on affordability (like a your home mortgage).  So your income will need to cover all both your residential mortgage and the new regulated buy to let.  

Uncles, aunts, nephews etc are not considered to be immediate family members.  

There are specialist lenders who lend to student buy to lets on a non-regulated basis, if your children occupies less than 40% of the property.  Such as shared accommodation. Then the loan will be based on rent. 

How does rental income calculation work?

The level of lending on a BTL mortgage is based on the rent.  However, some lenders require the applicant to have a minimum income as well; to ensure they do not rely completely on rent for day to day living.  This is different if you are a professional landlord with a property portfolio.  

Maximum LTV is 75 – 80%.  However, higher the deposit lower the rate.

Criteria that affects the loan amount

  • Mortgage rate:  Lender’s apply a rental stress test to determine the loan amount.  The rate used for the stress test varies between long term fixed rates (5 years+) and short term fixed rates.
  • The applicant’s tax rate: Higher rate tax payers (HRT) gets lower maximum loan.  This is due to tax charge on rental income being higher and therefore less rent will be available to support the mortgage (especially if rates rise or there will be void periods in renting).  – see below.
  • Type of property and number of bedrooms:  A family home, individual let or a house of multiple occupation (HMO).  Naturally larger the number of rooms greater the rent to support the borrowing.
  • Type of ownership: personal or through a Liimited Company.  This is because tax on rental income for Ltd companies is lower than for higher rate taxpayers.

Applicant requirements

  • Residential owner occupier:  Most lenders require you to be a home owner.  Several reasons, including prevention of BTL properties being purchased to be occupied by applicant.
  •  First time buyer BTL: It is possible for a first time buyer to purchase a BTL property.  The maximum loan will be restricted to income based affordability, i.e. similar to a residential mortgage.

True First Time Buyer BTL: from specialist lender’s only with a higher rate.  Include parent’s buying for students.

  • Income: two types of lenders:  Those that require an applicant to have a minimum income and those that don’t.  Minimum income requirement can vary from £15,000 – 25,000.  Other lenders don’t need an applicant to have a minimum income, but they need the applicant to have an income so that their day to day living is supported independent of rental income. 

Rental income requirement

The calculation.

  1. Your current tax rate – it is considered that a higher rate tax payer (HRTs) will pay more tax on rent and therefore have less rent available to pay the mortgage.  While a basic rate taxpayer (BRTs) will retain more of the rent as profit.  So maximum loan is lower for a HRTs.
  2. Whether the property is owned as an individual or a limited company will also affect the loan amount.  As well as if you are a portfolio landlord (i.e. own 4+ BTL properties).
  3. Rental stress test – the stress test is carried out by using what is called the ICR or the Interest Cover ratio and a notional interest rate.  The Prudential Regulation Authority (PRA) which govern mortgage lending requires the lenders to stress test the rental income to ensure that the mortgage is affordable even if the interest rates rise in the near future (next 5 years).  If the rate is fixed and for 5 years or more, lenders are left to follow their own responsible lending guidelines.  This allows lenders to stress test rent at a lower ICR leading to higher lending for rates of 5 years or more.

a. The ICR is set at a defined percentage above the rent e.g. 125% or 140% of rent. The notional interest rate is set at up to 3% percentage points above the actual pay rate.  The ICR and the notional interest rate can be subjective to each lender.

b. With some lenders the ICR varies based on individual tax rate or if lending to a LTD Co.  Such as 125% for non-tax payers or BRTs and 145% for HRTs.

c. Notional interest rate is based on how long the pay rate is.  If the rate is less than 5 years, it is set at a stressed rate such as 5.5%.  If the rate is 5 years or more it is usually the pay rate, which allows the maximum loan to be higher.

Example 1: Property value £300,000.  Loan required £225,000 which is 75% loan to value (LTV) with a deposit of £75,000.  Market rent £1200.  Which rate will allow the loan required?

Lender criteria: ICR: 125% for BRTs; 140% HRTs. 

Rates available: 2 year fixed 2.6%; 5 year fixed at 3.6%.

Notional / stressed rate for rates less than 5 years = 5.5%;  for rates 5 years or more = pay rate.

All ICR calculations are based on interest only payments.

  1. In this example you will see that on a 5 year fixed rate, the rate is higher and consequently the monthly mortgage payment is higher, but the lender will still lend more money than at the lower rate.

  1. If it is BRT opting for 2 year fixed: Max loan (calculated on annual rent) is-

=Annual rent/(ICR x notional rate*)                

[*Notional rate is stressed rate as it is a 2 year rate]

Max loan =(1200×12)/(125% x 5.5%) = £209,455

Another way to put is, rent needs to be 25% higher than the monthly mortgage calculated at stressed pay rate.

b. If it is BRT opting for 5 year fixed: Max loan (calculated on annual rent)

=Annual rate/(ICR x notional rate e.g. pay rate)

Max loan =(1200×12)/(125% x 3.6%) = £320,000.

  1. HRTs opting for 2 year fixed:

Max loan = (1200×12)/(140% x 5.5%) = £187,012

2. HRTs opting for 5 year fixed:

Max loan = (1200×12)/(140% x 3.6%) = £285,714


BRT max loan

Rent adequate

HRT max loan

Rent adequate

2 year fixed





5 year fixed





Example 2: The calculation can also be reversed to determine the rent required for a particular loan. 

Property value £400,000.Loan required £300,000; 75% LTV with a deposit of £100,000.What is the rent and at what rate can a BRT borrow £300,000?

Lender ICR: 125% for BRTs; 140% HRTs. 

Rates available: 2 year fixed 2.6%; 5 year fixed at 3.6%.

Notional / stressed rate for rates less than 5 years = 5.5%;for rates 5 years or more = pay rate.

All ICR calculations are based on interest only payments.

Rent required = (loan x interest rate)/(12xICR)

Rent required = (300,000×3.6%)/(12×125%) = £1125 per month rent is required to obtain a loan of £300,000 for a BRT if a 5 year fixed rate is selected.

Finally, different lenders can calculate the ICR in different ways leading to different levels of loans to the same applicant.