Buy To Let Mortgages
- Our team at Heron Financial helps landlords navigate the Buy to Let process, advising on important considerations and mortgage basics.
- Learn how much you can borrow based on potential rental income, with personalised guidance from your dedicated broker.
- Open seven days a week, and available for online appointments for your convenience
Please contact us for a no-obligation conversation with an adviser about the most suitable mortgage option for you.
Get In Touch
Buy to Let Mortgage (Part 1)
Matt Coulson and Richard Campo talk to us all about the Buy to Let mortgage process. Episode one of two, recorded in February 2025.
What is a Buy to Let mortgage and how does it differ from a regular mortgage?
The mortgage itself is relatively straightforward – mortgages are always the same. The difference is that Buy to Let is exclusively for the purpose of renting a property, and there are different forms that can take.
It’s a much bigger market than people think, as well. As of April last year when HMRC did the last assessment, there were 2.82 million private landlords in the UK and the average portfolio is 8.6 properties, which is interesting, because it’s increased over recent years.
Equally, you’ve got 57% coming into this as ‘accidental landlords,’ and 42% of those would be buying a property explicitly as a Buy to Let property. It’s just not a straightforward area, but we’ll come onto that in much more detail.
What are the eligibility criteria for obtaining a Buy to Let mortgage? What factors do lenders typically consider when assessing a Buy to Let mortgage application?
It’s mainly for homeowners, but not exclusively. Generally we would expect somebody who already owns a property to be applying for a Buy to Let mortgage. There are lenders that allow a First Time Buyer to apply for a Buy to Let, but there are less of them.
Ideally, you would have a 25% deposit, albeit that does vary based on the market. It’s possible to get a Buy to Let mortgage with a smaller deposit than that, but it does get trickier. Like on the residential side, the smaller your deposit, the trickier it becomes in terms of product availability.
How much deposit is usually required for a Buy to Let mortgage?
The market average has always been a 25% deposit for a Buy to Let mortgage. 25% is a magic number in mortgages because house prices have never gone down more than 25% in any one cycle.
That’s when you’re considered low risk to the bank and hence why any more risky ventures like Buy to Let require that level of deposit. That said, at the time of recording in February 2025, you can go as low as 15% deposit, and I’ve seen 10% deposit mortgages in the past.
That will depend on market conditions, so in brilliant times when prices are shooting up, you might get away with a smaller deposit. If market conditions are tougher or house prices are going down, you could need a larger deposit.
Also, the larger the deposit, the lower the rate you get. If 25% is your starting point, for every 5% deposit you put down, the rate just gets a little bit cheaper up to a 50% deposit, which gets the best pricing on the market.
The deposit is one thing, and criteria is another. The amount of rental income you receive on a property will ultimately drive what deposit you need to put down. Sometimes, for example in London and the south east, you may need more than 25% deposit.
Can you explain the concept of rental coverage and how it affects Buy to Let mortgage applications?
When you’re applying for Buy to Let, this is actually more important than your income. It’s the thing that drives a lot of the decision making for a lender in assessing whether you can have the mortgage – and how much.
It’s driven by some regulation from 2014 when interest rates were very low – hovering around 1%. The thought process was that it couldn’t go on forever. We’re recording this in February 2025 and it certainly didn’t last.
It’s the PRA who effectively oversee the Buy to Let market, and they set out rules where if rates were to go up by 2%, 3%, 4% potentially, would that rent still cover that mortgage payment? Are we stress testing this at a high enough level?
Today in February 2025, the base rate is currently 4.5%. So that does present challenges, but it also proves the rules were fit for purpose. A word of caution here – different lenders treat this very differently.
Some will have a more optimistic view, but as a general rule, if you assume a 5.5% interest rate on the mortgage, irrespective of the actual rate, and then multiply by 125% for coverage, that gives you an idea of the rent you will need. That is how you satisfy the lender’s affordability.
In that example, for every £100,000 pounds of borrowing you’re looking to take, you need around about £575 per month in rent to cover it.
I’ve thrown lots of numbers around there, to show that this is pretty complex. Many years ago, Buy to Let was more free and easy with 10% deposits and things – this stuff just didn’t really exist. It’s another reason why talking to an advisor is so helpful.
That’s before we even start talking about limited company Buy to Lets – where a whole other world of tax advice gets opened up.
Are there specific fees associated with Buy to Let mortgages to be aware of?
There’s nothing wildly different in terms of Buy to Let from any other mortgage. Lenders charge a range of arrangement fees, which could be as little as nothing up to 9.99% fee of the loan you borrow. The only reason it’s not 10% is because the system wasn’t built to capture a 10% fee.
A typical fee might be £2,000 pounds. Those changes in how the rental income is assessed led to these bigger fees. A lender charges a bigger fee, but a lower interest rate to make those calculations fit.
The total cost of the mortgage is still very important here, but there might be a practical aspect where one lender will lend you X, another will lend you Y. The question is your driver – is it getting a cheaper mortgage or a larger loan? That’s a common conversation with Buy to Let mortgages.
The rest is probably the same – all lenders need to arrange a survey. Most offer these free but sometimes there are fees, particularly if you’re buying in a limited company. Then, it is normally about 0.1% of the property value.
Sometimes, there are fixed application fees of £99 or £199, but again, we’ll look at that in terms of total costs.
On the limited company side, some of these fees are larger and rates are higher, but it is more advantageous from a tax position. So definitely have a look into that, because you can’t talk about Buy to Let and not get tax advice. The treatment of these fees, whether they’re in your name or through a company, is highly relevant.
Should I choose interest only or repayment on a Buy to Let mortgage?
We can’t give any tax advice, and you need a very good tax advisor alongside your broker to guide you through this process – because it is more complex than it used to be.
Tax is a factor in this decision, but it really depends on your own personal goals. As general guidance, if you’re looking to build a portfolio of properties, interest only might be a means of gathering up profit within your business to potentially purchase other properties.
Interest only will generally increase the amount you’re bringing in against your costs.
Repayment is potentially more suitable if you are keen to pay off the property as soon as possible, as a pure profit generator, without necessarily recycling some of the funds you’re generating. The tax piece is important because there are pros and cons of each approach.
What are the implications of recent tax changes on Buy to Let mortgages?
Obviously, we’re not giving tax advice – you do need to speak to an accountant. The tax treatment on a limited company Buy to Let is often more favourable than a personal mortgage. That’s a statement of fact. It’s not an opinion.
But it’s not for everybody, because you have to look at your wider tax position and how that works. A day one decision is whether to buy in a limited company or not. That drives the types of lenders that we talk to and criteria to deal with.
You can’t not talk about the tax side of things because for existing landlords, it’s been a real pain. You can’t offset mortgage interest, currently. A lot of people are having to subsidise rental properties out of their own income, or are choosing to sell. That has caused rental income to go up quite considerably over the last few years, as so many landlords are selling.
However, that does create an opportunity. If you’re coming into the market, you could set yourself up correctly to take advantage of those higher rental income yields. It’s complicated, and you have to deal with it from the front end so we get the back end mortgage right.
You could get a mortgage agreed, and at the last minute, decide to do this as a limited company. You’d potentially lose fees and have to start all over again, and even jeopardise the purchase. That’s why it’s just so important to get that done straight off the bat.
What else do we need to know before we come back with part two?
If it hasn’t come across already with the answers we’ve given, this is a really specialist area now. It’s not something a casual observer could necessarily navigate. That’s why it’s really important to get advice.
So much so that many lenders now are not dealing directly with customers and only accept applications through a broker or advisor. That’s a really good thing because, as you will have gathered listening to this, there are a lot of pitfalls. It can go wrong, so it’s really important to get advice.
Through certain advisors and brokers, you’re going to have access to potentially more products. There are exclusive rates there alongside the advice – and it can save you a lot of time, as well. Have those conversations up front because you don’t want to go down that track and then find you’ve got to start again.
You need to see all the products that are available and that can only be done via a broker – and get all your ducks in a row in terms of tax advice, as well.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.
THERE IS NO GUARANTEE THAT IT WILL BE POSSIBLE TO ARRANGE CONTINUOUS LETTING OF THE PROPERTY, NOR THAT RENTAL INCOME WILL BE SUFFICIENT TO MEET THE COST OF THE MORTGAGE.
Speak To An Expert
Our key aims are to fully understand what you are looking to achieve, create a solution tailored to your needs, deliver results through an excellent service and build a relationship for life.
Buy to Let Mortgage (Part 2)
Are there any restrictions on using Buy to Let mortgage for properties in certain areas or for specific tenant types?
Richard: There are no specific restrictions on location, but it’s very important. The demand has to be there for the rental incomes to work. That’s probably a whole separate topic, but there’s no specific restriction as long as rental income stacks up, as we’ve spoken about previously.
Tenant type is a lot more complex. Buy to Let providers want you to rent out a property on an Assured Shorthold Tenancy (AST) or a tenancy agreement, as you might refer to it.
If you don’t have a single AST, some banks might have restrictions around that. A typical example is a house of multiple occupation (HMO) where you let each room individually. While it’s one property, that’s a different tenancy type and could be problematic. Local authorities have different definitions of HMOs, too, to make life more difficult.
Corporate lets are another one – you might let your property to a business for five years. Some banks don’t like that because they don’t know who the tenants are. Even though a company is paying for it and the tenant is secondary, it’s all about repossession. As they’re not 100% sure who’s in the property, corporate lets can be restrictive.
Also, when a local authority is paying the rent for people on benefits, again that can be restrictive with lenders. They’re the things you need to take care with. None are a problem, it just drives which lender you go to.
If you’re renting out a property that isn’t on single AST, have a good conversation with a broker. We can absolutely navigate that. We don’t want you to go to lender A, get turned down and have to go to lender B, that’s just a poor experience.
Are there any government schemes or support available specifically for Buy to Let investors?
Matt: The short answer is no, there aren’t any government schemes to support the Buy to Let marketplace. I suspect that’s unlikely to change. When the government gets involved in the housing market, it’s normally to prop up First Time Buyers or help people who otherwise wouldn’t be able to buy their own home. It’s not about buying property to invest in.
That said, there are some private schemes on the market as we’re recording this in March 2025. Some of those schemes may well expand into the Buy to Let arena, so watch this space.
Also, to use a bit of creative licence, we’ve already talked about the idea of using a limited company or a special purpose vehicle for Buy to Let property. In a way, you can think of that as a scheme. It’s a creative approach to making a purchase, beyond buying in your personal name.
Can you discuss the importance of property management and its impact on Buy to Let mortgages?
Richard: It’s an individual choice. Property management is probably the single biggest reason why people don’t buy rental properties – it’s perceived as a massive hassle. If someone’s boiler breaks at 2am, do you want to be fielding that phone call?
Some people are quite happy to do it, particularly if you’ve got a few rental properties and can manage it yourself. I personally wouldn’t want to take that phone call, so I would look at a property management company.
They’ll charge you a fixed fee, typically 5% to 10% of the rental income you receive, depending on the service. Most estate agents offer this – they will not only find you a tenant, but manage it for you as well.
It’s a classic balance of cost vs hassle. How much do you want to spend to relieve the potential headache? It’s an individual choice, because lenders work on the gross rental income, so it’s not particularly going to affect how much you could borrow or how the loan is going to be assessed. It’s down to how much profit you want to make and how much hassle you want to have.
What are the potential risks involved in investing in Buy to Let properties?
Matt: We remove ourselves from tax advice conversations, and the same goes for investments. Explaining whether something is a good or bad investment is in the realm of a financial advisor as opposed to a mortgage advisor.
As a comment – not advice – the UK property market has performed pretty well over a long period. Whilst there have been challenges in that Buy to Let space, it has largely been a good place for people to invest and make money.
But if you are considering a property investment, you should think about the risks of not being able to make your mortgage payments or your tenant leaving – or not leaving when you want them to. Additionally, the asset could potentially depreciate in value. There’s a lot to consider there.
What are the consequences of defaulting on a Buy to Let mortgage?
Matt: They’re very similar to the consequences of defaulting on a regular residential mortgage. It drastically reduces your chances of having a lender at all, and if you do have a lender, they may charge you a higher interest rate.
With historic challenges on your credit file such as missed payments, late payments, defaults or CCJs, the worse that situation is, the smaller the list of available lenders becomes. There is a point where actually there might be no lenders at all.
In the Buy to Let space, quite a few lenders are willing to consider historic defaults and arrears. The more time goes by, the more lender options you’ll have. For example, with a credit issue that’s over two years old, lots of lenders will potentially ignore it. If it’s six years old, hardly any lenders would have a problem.
I always recommend people get their own individual advice on this. Getting a view of your own credit file is the best start. If you’re not sure whether you did or didn’t have a default or when it happened, those are important things to check and talk to your mortgage advisor about.
Don’t panic, because there’s generally an option out there – unless the circumstances are really bad.
Can you explain the process of adding additional properties to an existing Buy to Let portfolio?
Richard: There are two main approaches. The first is the most typical, where you’ve got one Buy to Let and you’re buying a second and we’ll just find the best Buy to Let provider for that second property.
It’s very unlikely that your current mortgage provider will still be the top choice for the second purchase, just because pricing moves around over time.
But you could also get a proper portfolio mortgage. You might have 10 properties with a single mortgage charged against the entire portfolio. You can do it in your personal name or through a limited company – which tends to be much easier. There’s a lot of pros and cons around this which I won’t get into now, but you can do that.
It’s more of a commercial proposition that suits commercial lenders and private banks. It’s not really one for amateur landlords – it would be for quite serious investors. It tends to make sense if you’re gearing up to buy more property.
A bank will average the Loan to Value and the rental income and you can ask them for a loan to buy more property, and they’ll do it. That’s the advantage of the portfolio approach. The downside is that it’s more expensive because of the administration. Typically most people take the first approach – taking the cheapest deal available at the time.
Can you explain how things work for a professional landlord?
Richard: This is a very important definition. Essentially, if you have four or more mortgage properties, you are deemed a portfolio landlord in a lender’s eyes, because that’s the way the regulation works.
But there is a quirk to it. Let’s say, for example, you own 10 properties, but only three had a mortgage – in that case, you’re not a portfolio landlord. But then if you added in another three mortgages, so you have six mortgages on 10 properties, you now are a portfolio landlord. It’s about mortgaged properties, not the absolute number.
There’s more work involved in getting a mortgage as a portfolio landlord. We need business plans, rent rolls, et cetera. It’s not a big deal and we can do it for you, but it might preclude certain lenders. Some don’t want to deal with professional landlords – they just want amateur landlords, and vice versa.
What steps should a first-time Buy to Let investor take before applying for a mortgage?
Matt: Speaking to a broker is always a really good start. I mentioned your credit report and the importance of that. Have a conversation with a mortgage advisor with all of your information to hand.
Even though we’ve laboured this point, tax advice is absolutely paramount in Buy to Let. It’s not uncommon for us to be talking to a client about their mortgage options and they’re also talking to a property tax specialist at the same time.
Sometimes those conversations happen on the same call. Depending on your ambition and the portfolio you’re looking to build, we can speak to you and your tax advisor together. The advice on the tax side will shape the mortgage advice we provide. Getting that advice at the very outset is key.
When you’re going into that conversation, you need to establish what your long term goals are. Is this ultimately a pension pot for you in the future? Or is it a short term thing – you want to dip into the market and maybe sell the property in a few years time?
Go into that conversation with an idea of why you want to get into Buy to Let and grow a portfolio – that gives everybody a good start point.
What else do we need to know about Buy to Let mortgages?
Richard: If you’ve listened to both parts of this, you can see that it’s a very complex area. We’ve date-stamped a lot of what we’re talking about because it often changes.
The big advantage of coming through a broker is that we can access lenders that do not deal with the public. It’s as simple as that. Through a broker you will access more products, more lenders and more options, which could either save you money or achieve your goals.
Working with a broker also saves you so much time. You might go to lender A, they’ll lend you a certain amount, but you don’t know that lender B would do things differently.
We’ve also got our own proprietary system called Everglades to present your credit file to lenders. We’ve got affordability tools and research tools. This is not an easy thing to do yourself, even if you’re very experienced. Just come talk to us for a second opinion, if nothing more.
Getting your Buy to Let Mortgage
Your Buy to Let Mortgage is a secured loan against a property you own and intend to rent. The sole purpose of this type of mortgage is purely for rent.
The amount you can borrow here is based upon how much rent is charged per month. Ideally, rental income will cover mortgage payments, with a little left over.
Research is key and this is something our experienced brokers help you with initially. Making the right choice should not be rushed.
Delving into the world of buy to let on your own can potentially be a daunting process. There’s lots of information to digest and a variety of lenders with different requirements. Choosing us to handle this for you makes the purchase simpler.
You’ve likely already decided on the perfect area for your buy to let property. There are however some considerations.
Is the area profitable? Does the area provide good transport links? How close are local amenities? What type of tenants currently reside in the area? Is this demographic set to change? We’ll help answer these and similar questions.
As professional Mortgage Brokers we have access to a variety of deals available and Heron wont charge you any fees. Our information is always straightforward.
When presenting you with a highly researched deal, all you need to decide is whether you’re going ahead. If so, we’ll be with you every step of the way through setting up your new, buy to let mortgage.
It’s important to understand the fees when going ahead with a buy to let mortgage. At Heron Financial our service is transparent.
Most lenders require a minimum salary. Typically you’re required to cover at least 20% deposit. Interest rates, arrangement and conveyancing fees can also be higher. Employing a broker to deal with these issues makes the process easier and our services are of course free.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST Buy to Let MORTGAGES.
THERE IS NO GUARANTEE THAT IT WILL BE POSSIBLE TO ARRANGE CONTINUOUS LETTING OF THE PROPERTY, NOR THAT RENTAL INCOME WILL BE SUFFICIENT TO MEET THE COST OF THE MORTGAGE.