How buy-to-let mortgages work
A buy-to-let mortgage is specifically designed for property you intend to rent out. They work differently to residential mortgages in a few important ways: affordability is assessed primarily on the rental income the property generates rather than your personal earnings, interest rates tend to be slightly higher, minimum deposits are larger, and the regulatory framework is different — most buy-to-let mortgages are not regulated by the FCA.
The choice of lender matters a great deal. Lenders have different views on property types, different rental stress test calculations, different policies on limited company applications, and different approaches to portfolio landlords. Knowing which lender suits your specific situation is a significant part of what we do.
Regulatory note: The FCA does not regulate most buy-to-let mortgages. Buy-to-let lending is a commercial decision and is treated differently to residential lending in law. Where a buy-to-let mortgage is regulated — for example, in certain consumer buy-to-let cases — this will be made clear.
How affordability is assessed
Unlike residential mortgages, where affordability centres on your income and outgoings, buy-to-let lending is primarily assessed on the rental income the property is expected to generate.
Lenders apply what’s called a rental stress test — they calculate whether the rent covers the mortgage payment by a sufficient margin, typically between 125% and 145%, at a notional interest rate (often higher than the actual product rate). This is designed to ensure the investment stacks up even if rates rise or the property sits empty for a period.
Monthly mortgage payment: £800
At 125% stress: Rent needs to be at least £1,000/month
At 145% stress: Rent needs to be at least £1,160/month
The stress test rate and coverage percentage varies by lender — which is why the same property and the same rent can produce different maximum borrowing figures from different lenders.
Some lenders also require a minimum personal income — typically £25,000 — alongside the rental stress test. Others have no minimum income requirement. For higher rate taxpayers purchasing through a limited company, the stress test is usually applied differently and can be more generous.
Deposits for buy-to-let
Most buy-to-let lenders require a minimum deposit of 25% of the purchase price, though some will consider 20% for the right applicant and property. A larger deposit generally means better rates and more lender choice — the same principle as residential lending.
Deposit requirements can be higher for certain property types: HMOs, new build flats, flats above commercial premises, and non-standard construction properties often attract stricter requirements. It’s worth checking lender criteria for your specific property before committing to a purchase.
Personal name or limited company?
One of the most common questions from landlords is whether to purchase in their personal name or through a limited company (often called a Special Purpose Vehicle or SPV).
The tax treatment of buy-to-let income changed significantly in 2017 with the phased reduction of mortgage interest tax relief for individual landlords. Higher rate taxpayers can no longer deduct mortgage interest from rental profits in the way they once could. Limited companies pay corporation tax on profits, and mortgage interest remains a fully deductible expense. For many landlords — particularly those building or expanding a portfolio — the company route now makes more financial sense.
That said, it’s not straightforward for everyone. Setting up and running a company has costs, extracting profits has tax implications, and if you’re a basic rate taxpayer the advantage is less clear-cut. The right structure depends on your individual tax position, how many properties you own, and your long-term plans.
We can explain the mortgage side of both options clearly, but the tax decision is something your accountant should input on. If you don’t have a good accountant who understands property, it’s worth finding one before you proceed.
Portfolio landlords
If you already own four or more mortgaged buy-to-let properties, lenders classify you as a portfolio landlord. This triggers a more detailed assessment — lenders look at the performance of your entire portfolio, not just the property you’re financing.
You’ll typically need to provide a schedule of your existing properties including current values, outstanding mortgages, rental income, and any voids. Lenders want to satisfy themselves that the portfolio as a whole is viable, not just that the new acquisition stacks up in isolation.
Not all lenders will work with portfolio landlords. Some cap the number of properties they’ll consider, others have minimum portfolio values, and a small number specialise in this area. If you’re a portfolio landlord or heading toward that threshold, getting the right lender selection from the start matters.
HMO mortgages
Houses in multiple occupation have their own mortgage market. Standard buy-to-let lenders often won’t consider them, and those that do may have specific requirements around the number of rooms, licensing status, and minimum property values. See our dedicated HMO mortgages page for more detail.
Let-to-buy
If you want to keep your existing home and let it out while buying a new one, this is called let-to-buy. It involves converting your current residential mortgage to a buy-to-let mortgage — with your current lender’s consent — and taking out a new residential mortgage on the property you’re moving to.
It needs to be structured carefully. Both lenders need to be comfortable with the arrangement, and the rental income on the existing property needs to meet the buy-to-let stress test. Timing is also important — the two transactions usually need to happen simultaneously. We’ve handled a number of these and can guide you through what’s involved.
Whether you’re buying your first investment property or expanding a portfolio, call us on 01277 564 054.
Our fees for buy-to-let advice
No charge for initial conversations. A broker fee may apply depending on the complexity of the case — a straightforward single property purchase is treated differently to a complex limited company or portfolio case. Any fee is always confirmed clearly and agreed before you decide to proceed. See our full fee schedule.
Frequently asked questions
Primarily on the expected rental income rather than your personal income. Lenders apply a rental stress test — typically requiring the rent to cover 125% to 145% of the mortgage payment at a notional interest rate. Some lenders also require a minimum personal income.
Most lenders require a minimum of 25%, though some will consider 20% depending on the lender, property type, and your profile. HMOs, new build flats, or non-standard properties may attract higher requirements.
Yes. Many landlords now purchase through a limited company for tax efficiency. The assessment works differently — lenders focus on rental income rather than personal income — and rates can differ from personal name lending.
Lenders define a portfolio landlord as someone with four or more mortgaged buy-to-let properties. Portfolio landlords face additional assessment requirements — lenders look at the overall portfolio performance, not just the property being financed.
Not without your lender’s permission. If you want to let your existing home and buy a new one, this is called let-to-buy and needs to be structured carefully with both lenders involved.
No charge for initial conversations. A broker fee may apply depending on the complexity of the case — this is always confirmed clearly before you decide to proceed.