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Buy-to-let mortgage rates

Buying a home to rent out? Here's our easy-to-understand guide to rental mortgages and where to find the best buy-to-let mortgage rates.

Guest Author
Words by: Harriet Meyer

Buying a property to rent out is a great investment. Becoming a landlord can give you a stable income and help maximise your nest egg over the long term.

Unless you have cash in the bank, you’ll need a buy-to-let mortgage. These mortgages are quite different to standard residential ones. 

Buy-to-let mortgages are designed for people who want to own a property as an investment, rather than live in it themselves.

Many lenders consider a buy-to-let mortgage as higher risk, so you may need to need certain conditions to be eligible for one.

You’ll need a minimum 25% deposit for a buy-to-let mortgage and the amount you can borrow is based on the monthly rental you’re likely to get.

Your rental income will also need cover 125% of your mortgage repayments.

So, before you take the plunge, let's check out the rules and do some research.

Here’s what you need to know:

1. What is a buy-to-let mortgage?

A buy-to-let mortgage is a loan for people who are buying a property to rent out.

You’ll need one if you’re buying an investment property, or even if you plan to rent out your own home.

You can’t buy a rental home with a standard residential mortgage. Unless you’re given ‘consent to let’ by your lender, which is permission to rent out your main home for a period.

Buy-to-let mortgages are seen as higher risk by mortgage lenders. That's because you may face periods without any rental income in between tenants.

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2. How does a buy-to-let mortgage work? 

The majority of buy-to-let mortgages are taken out on an interest-only basis.

That means you’ll only pay the interest on your mortgage each month, rather than repaying the actual loan itself. 

A repayment mortgage is where you chip away at the capital debt and it's the most popular type of residential mortgage.

Interest-only means your monthly repayments are usually lower, but you won’t be paying any of the loan back. 

At the end of the mortgage term (usually 25 to 30 years) you’ll still owe the full amount borrowed and will need to repay it in full. This might mean selling the property.

Find out more about the differences between repayment and interest-only mortgages.

3. How is a buy-to-let mortgage different from other mortgages?

Buy-to-let mortgages also differ from standard mortgages in several ways:

  • They cost more to arrange, with fees of usually 2% or more of the mortgage value

  • Interest rates tend to be slightly higher for buy-to-let mortgages

  • The majority of deals require a minimum deposit of at least 25% of the property’s value

  • The cheapest rates are reserved for deposits of 40% or more

When you take out a buy-to-let mortgage, you usually need to show how much rental income you expect to receive. 

The rental income must cover anything between 125% and 145% of your mortgage payments, depending on the lender’s criteria.

Rental cover is also assessed against a ‘stressed’ interest rate, which can currently be as high as 7.5%. 

Each lender has their own calculations. They may differ depending on your personal circumstances, so it’s not always straightforward.

If you have four or more buy-to-let properties, lenders will probably want to see details for them all, including statements and a business plan.

A mortgage broker can help you with this.

Find out more about using a mortgage broker to apply for a mortgage

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Work out what your monthly mortgage payments could be with our mortgage calculator.

4. Who can get a buy-to-let mortgage?

Depending on a lender’s assessment, you may be able to get a buy-to-let mortgage under the following circumstances:

  • You want to invest in property and understand the risks involved

  • You earn £25,000 or more per year – many lenders require this as a minimum to approve a buy-to-let mortgage

  • You already own a home yourself, with a mortgage or outright

  • You have a good credit score and aren’t saddled with masses of debt

  • You’re under a particular age. Lenders have upper age limits, which refers to how old you can be when the mortgage ends. Typically this is between age 70 and 75. But a few go as high as 90 years old

5. Buy-to-let mortgage: how much can I borrow?

It depends how much you can rent the home out for.

Banks and building societies will look at how much rent you can expect to receive to work out how much you can borrow. 

Some lenders will also look at your affordability more broadly when considering your application. That includes your other spending and debt.

How do you find out how much rent you can charge? By asking letting agents in your area and comparing similar properties on the market via Zoopla.

Your lender will confirm this rental estimate from the surveyor when they value the property.

As a rule of thumb, your rental income will need to be at least 25% to 45% higher than your mortgage payments. 

So if, say, your monthly interest payments are £1,000 per month, you’ll need to charge your tenants at least £1,250 a month in rent.

The more rent you can earn, the more you can borrow. A mortgage broker can help with nailing down the figures based on your situation.

As with all mortgages, you will also need to think about how much you want to borrow compared to the property’s value.

This is known as the ‘loan-to-value’, or LTV. 

LTV is given as a percentage. Let’s say you wanted to borrow £100,000 against a property valued at £200,000 – this amounts to an LTV of 50%. 

However, as mentioned above, you may struggle to get a mortgage at more than 75% LTV on a buy-to-let property, as these deals require bigger deposits.

Find out more about loan-to-value

6. What are the interest rates and fees for buy-to-let mortgages?

At the time of writing, buy-to-let mortgage rates are hovering between 5-7%, with the best deals being at the lower LTV end.

It's also worth remembering that fees for buy-to-let deals can be hefty when compared to standard mortgages. 

The cheapest rates can come with arrangement fees that run into thousands.

So it’s vital to factor in the cost of any fees alongside the interest rate when comparing deals. 

Sometimes, a higher interest rate can work out cheaper over the mortgage term.

7. Where can you find a buy-to-let mortgage?

There are plenty of buy-to-let mortgage deals on offer from banks and other lenders. 

Sorting through these can be a time-consuming task. A mortgage broker can help you to find the right deal for you. 

Do your research before making a decision on a mortgage deal. 

And remember to look beyond the headline rate to check other fees and charges.

Find a buy-to-let mortgage

8. The 3% stamp duty surcharge on second homes

Bear in mind additional costs such as the stamp duty surcharge, which comes with a hefty 3% loading on the regular stamp duty rates for second homes.

And that 3% loading applies to the entire purchase price of the property.

So, if you're buying a second home with a purchase price of £300,000, just the extra 3% stamp duty would equate to £9,000 (3% of the entire price).

That's in addition to the £5,000 regular stamp duty bill on a home of this value, bringing the total payable to an eye-watering £14,000

Find out more about the stamp duty costs on second homes

The stamp duty surcharge on second homes

BandRegular residential SDLT ratesResidential rates with the extra 3%
£0 - £250K0%3%
£250K - £925K5%8%
£925K - £1.5m10%13%

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We try to make sure that the information here is accurate at the time of publishing. But the property market moves fast and some information may now be out of date. Zoopla Property Group accepts no responsibility or liability for any decisions you make based on the information provided.