What Is a Buy-to-Let Mortgage? How BTL Mortgages Work
A buy-to-let mortgage is borrowing secured against a property that is intended to be rented to tenants rather than occupied by you as your main home. Here is how the mortgage works, what lenders look at and how it differs from an ordinary residential mortgage.
The simplest way to understand a buy-to-let mortgage is this: the property is being financed as a rental investment, so the lender looks at the proposed letting arrangement as well as the borrower.
That makes the assessment different from a standard residential mortgage. Expected or existing rent can be important, alongside the property itself, your deposit or equity, your financial circumstances and whether the property will be owned personally or through a company.
This guide is for readers who want to understand the basics before comparing actual products or preparing an application.
What is a buy-to-let mortgage?
A buy-to-let mortgage, often shortened to BTL mortgage, is a mortgage used to buy or refinance a property that will normally be rented to tenants.
Unlike an owner-occupied residential mortgage, the finance is arranged on the basis that the borrower will not normally live in the property as their main home. The lender therefore considers the property as a rental proposition and may place significant weight on the rent it can generate.
Buy-to-let finance can be used by someone purchasing their first rental property as well as by experienced landlords. It can also be used to refinance an existing rental property.
How does a buy-to-let mortgage work?
The broad mortgage process is familiar: you contribute a deposit or use existing equity, a lender provides the remaining borrowing, and the property acts as security for the mortgage.
The main difference is how the rental property is assessed.
The property is considered as a rental
The lender looks at the property type, value, condition, location and whether it fits the lender's buy-to-let criteria.
The expected or current rent is reviewed
Rental income can be central to the amount the lender is prepared to advance. Lenders use their own affordability or rental-coverage calculations rather than one universal formula.
Your deposit or equity sets the starting LTV
The relationship between the property value and the mortgage amount is expressed as loan-to-value, or LTV. A larger deposit means a lower LTV.
The borrower and ownership structure are checked
Income, credit history, existing commitments, landlord experience and whether you are borrowing personally or through a company may all influence the lender route.
Buy-to-let vs residential mortgages
Both are loans secured against property, but they are arranged for different purposes. A residential mortgage is generally designed for a home that you occupy yourself. A buy-to-let mortgage is designed around a property that will be rented to tenants.
What do buy-to-let lenders assess?
There is no single universal set of buy-to-let mortgage criteria. Lenders have different policies, calculations and property appetites. However, four areas tend to shape the case.
Once you move from general research to an actual property or refinance, see the full Buy-to-Let mortgage hub for the commercial lender-assessment and application route.
Interest-only vs repayment buy-to-let mortgages
Interest-only mortgages are common in the buy-to-let market. With an interest-only mortgage, the monthly mortgage payment covers interest rather than gradually repaying the original capital balance.
That can reduce the contractual monthly payment compared with an equivalent capital-and-interest mortgage, but the original mortgage balance still needs to be repaid at the end of the term.
Interest-only
You pay the mortgage interest during the term and need a credible plan for repaying the outstanding capital later.
Capital and interest repayment
Each contractual payment includes interest and some repayment of the mortgage balance, so the debt reduces over time if all payments are made as scheduled.
Product rates and fees can materially affect the overall cost of either structure. For a more detailed look at that subject, read the Buy-to-Let mortgage rates guide.
How much deposit do you need for a buy-to-let mortgage?
Buy-to-let mortgages commonly require more equity than a standard residential mortgage, but there is no single deposit percentage that applies to every lender, borrower or property.
Deposit requirements can vary according to the lender, property, borrower, rent, mortgage product and ownership structure.
A lower LTV means you are contributing more of the property's value yourself. This can influence lender choice and product availability, but deposit size should not be looked at in isolation from the rental figures and wider case.
What costs should a landlord plan for?
The mortgage payment is only one part of the cost of owning a rental property. Before deciding whether the investment works, it is sensible to consider the transaction and ongoing costs together.
- Mortgage product and broker fees where applicable
- Property valuation costs
- Legal and conveyancing fees
- Property-purchase taxes where applicable
- Landlord insurance
- Repairs and maintenance
- Letting or management fees where used
- Periods without a tenant
- Safety, compliance and licensing costs where applicable
- Tax on rental-property profits
Individual landlords and companies can be treated differently for tax purposes. In particular, finance-cost relief for individual residential landlords is restricted. Obtain suitable tax advice before choosing an ownership structure because the mortgage route and the tax route are separate decisions.
Can a buy-to-let property be bought through a limited company?
Yes, limited-company and SPV buy-to-let mortgages are available from a range of lenders. The underwriting can differ from a personal-name application because the lender may also consider the company, its directors and shareholders and any guarantees or company documentation it requires.
A company structure should not be chosen purely because somebody else says it is more tax efficient. Tax, accounting, legal, mortgage and future-exit consequences can all differ.
The commercial hub contains the more detailed limited-company and SPV mortgage route so this introductory article does not duplicate that specialist content.
What happens when you apply?
An application is easier to assess when the property deal is defined before a lender is selected. The useful starting information normally includes the property, rent, deposit or equity, required mortgage amount, borrower circumstances and intended ownership structure.
Define the property and borrowing
Start with the purchase price or current value, property type, required mortgage amount and deposit or available equity.
Establish the rental position
Prepare the expected rent for a purchase or the current tenancy and rental information for an existing property.
Confirm who will borrow
Make clear whether the mortgage will be in personal names or through a company or SPV and prepare the relevant supporting information.
Compare lender fit, not just the headline rate
The rate matters, but so do affordability calculations, product fees, lender criteria, property restrictions and the overall cost of the mortgage.
Common buy-to-let mortgage mistakes
Many avoidable problems come from treating a buy-to-let mortgage as if it were simply a residential mortgage with a tenant added afterwards.
Renting out a residentially mortgaged property without checking first
If a property is currently on a residential mortgage, speak to the existing lender before letting it. Depending on the circumstances, consent to let or a move onto an appropriate buy-to-let arrangement may be required.
Comparing only the advertised interest rate
A lower headline rate does not automatically mean a lower overall cost once product fees, valuation, legal costs and the mortgage term are considered.
Assuming the rent automatically supports the mortgage amount
Each lender has its own rental-affordability calculation, so the same property can produce different borrowing outcomes with different lenders.
Choosing a company structure only for perceived tax savings
Ownership structure can affect tax, accounting, mortgage availability and future transactions. It should be assessed as a complete decision.
Leaving a remortgage review too late
Existing landlords should know when their current mortgage product ends and allow time for lender assessment, valuation and legal work where a refinance is planned.
Already own the property? Read whether you can get a BTL mortgage on a property you already own, or see the full buy-to-let remortgage guide.
Buy-to-let mortgage questions
What is a buy-to-let mortgage in simple terms?
It is a mortgage for a property that will normally be rented to tenants instead of occupied by the borrower as their main home.
Is a buy-to-let mortgage based on rental income?
Rental income is usually an important part of the assessment, but lenders can also consider the property, deposit or equity, borrower profile, credit history and ownership structure. The exact calculation varies between lenders.
How much deposit do I need for a buy-to-let mortgage?
There is no single deposit requirement that applies to every case. Buy-to-let generally requires more equity than a typical residential mortgage, with the precise requirement depending on the lender, property, rent, borrower and product.
Can a first-time landlord get a buy-to-let mortgage?
It can be possible. Some lenders accept first-time landlords while others apply additional criteria. The complete property and borrower profile determines which routes are realistic.
Can I live in a property with a buy-to-let mortgage?
A standard buy-to-let mortgage is normally arranged on the basis that the property will be rented rather than used as your own main residence. Do not assume you can move into a BTL property without first checking the mortgage terms and speaking to the lender or broker. For more detail, read our guide to living in a buy-to-let property.
Are buy-to-let mortgages always interest-only?
No. Interest-only borrowing is common in the buy-to-let market, but repayment options can also be available. With interest-only borrowing, the original capital remains outstanding and needs a repayment strategy.
Can I get a buy-to-let mortgage through a limited company?
It can be possible through a limited company or SPV. Lender requirements can differ from personal borrowing because the company, directors, shareholders, property, deposit and rental figures may all need to be considered.
Understanding BTL is the first step. The next step depends on the deal.
If you are now considering a purchase, refinancing an existing rental property or reviewing how you should borrow, start with the property, expected or current rent, deposit or equity, ownership structure and amount required.
Explore Buy-to-Let mortgage options