Buy-to-Let Mortgages Explained

A buy-to-let (BTL) mortgage is assessed differently from a residential one — the lender cares less about your salary and more about whether the rent covers the payment. That changes the deposit, the rates, and the maths of whether a rental property actually makes money.

How lenders assess you

• Deposit: typically 25% minimum — the best BTL rates sit at 60–75% LTV.
• Rental coverage: the expected rent must usually cover 125–145% of the mortgage payment, calculated at a stressed interest rate (often around 5.5%+) rather than the actual pay rate. If the rent does not cover it, the deposit has to grow until it does.
• Personal income: many lenders still want a minimum personal income (commonly £20–25k) as a backstop, though some have no minimum for experienced landlords.
• First-time buyers are mostly excluded. Most BTL lenders require you to already own a home.

Interest-only is the norm

Most BTL mortgages are taken interest-only — you pay the interest each month and repay the capital when you sell or refinance. That keeps monthly costs low and maximises cash flow, but the debt never reduces: you are relying on the property holding its value.

The tax that catches people out: Section 24

Since 2020, individual landlords cannot deduct mortgage interest from rental income before calculating tax. Instead you get a 20% tax credit on the interest paid.

What that means in practice:

• Basic-rate taxpayers are roughly neutral — the 20% credit approximates the old relief.
• Higher-rate taxpayers (40%/45%) are worse off — you pay tax on rental income before mortgage costs, then only get 20% of the interest back. In extreme cases the tax bill can exceed the real cash profit.
• This is why many new landlords buy through a limited company, where mortgage interest remains a deductible expense — but company mortgages have higher rates, and the structure has its own tax consequences. This is a genuine "speak to an accountant" question, not a rule-of-thumb one.

Extra stamp duty

Buy a property you will not live in (while owning another) and you pay the additional-dwelling surcharge — currently 5% on top of standard SDLT rates in England and Northern Ireland. On a £250,000 BTL purchase that is £17,500 rather than £2,500. Scotland and Wales have their own equivalents (ADS and higher LTT rates) at different rates.

The costs that eat your yield

"Gross yield" — annual rent ÷ purchase price — is the number people quote. What you actually keep is after:

• Letting agent fees — typically 8–15% of rent for full management (less for tenant-find only)
• Safety compliance — annual gas safety certificate, EICR electrical inspection every 5 years, an EPC of E or better to legally let
• Landlord insurance, and buildings insurance if the lender requires it
• Voids — budget for at least a few weeks a year with no tenant and no rent
• Repairs and maintenance — a common rule of thumb is 1% of property value per year, lumpy in practice
• Licensing — many councils run selective or additional HMO licensing schemes costing several hundred pounds
• Tax — on the profit, calculated per Section 24 above

A 6% gross yield can quickly become 3–4% net — before the mortgage.

The risks are real

• Rate risk. Interest-only payments move directly with the rate — a remortgage at a higher rate can turn cash-flow positive into negative.
• Void and tenant risk. One non-paying tenant plus a slow possession process can cost thousands.
• Regulation keeps tightening. The Renters' Rights Act has reshaped the private rented sector — the end of Section 21 "no-fault" evictions among other changes. Keep current on your obligations via gov.uk and bodies like the NRLA.
• Concentration. A single buy-to-let is one asset in one street — no diversification, and it cannot be sold in slices if you need cash.

The honest summary

Buy-to-let can still work, but the easy-money era ended with Section 24, the stamp duty surcharge and higher rates. Whether it stacks up for you depends on your tax band, the local rental market, and whether a limited company structure makes sense — that last question needs an accountant, not a website.

This guide is general information, not tax, mortgage or investment advice. Most buy-to-let mortgages are not FCA-regulated. Speak to a regulated mortgage adviser and an accountant before buying.