Ladybird Living – Your London Estate Agent

Ladybird Living
Jan 25 2023

Buy-to-let mortgages: how do they work?

Property owners who are looking to purchase property to rent it out would need a buy-to-let (BTL) mortgage. This blog will discuss who can get a buy-to-let mortgage and how they work. 


Who can get a buy-to-let mortgage? 

You need to meet specific criteria if you would like to get a buy-to-let mortgage. The criteria varies depending on the lender but may include the following: 


  • You must maintain a good credit score and minimise the amount you borrow   
  • Your lender may ask you to provide evidence of employment income or earnings from self-employment separate from rental earnings. If you earn less than £25,000+ annually, then some lenders may not approve your buy-to-let mortgage 
  • There may also be age requirements e.g. some lenders have a maximum age requirement of 75 years of age and others have lower age limits 
  • An LTV limit of at least 75% so you will need a minimum 25% deposit for a buy-to-let mortgage. 
  • Some lenders may also require you to own your home outright or with an outstanding mortgage 


How do buy-to-let mortgages work? 

Buy-to-let mortgages are similar to ordinary mortgages, but there are a few differences. Fees for buy-to-let mortgages and interest rates are higher. The minimum deposit for a buy-to-let mortgage is usually between 20%-40% of the property’s value. Furthermore, most buy-to-let mortgages are interest-only which means that you will pay interest monthly, but not the capital amount. You will then need to repay the original loan at the end of the mortgage term.  


How much can you borrow for buy-to-let mortgages? 

The amount you can borrow depends on the amount of rental income you expect to receive. Lenders expect your rental income to be at least 25%–30% higher than your mortgage payment. If you would like to find out what your rent would be, you can speak to letting agents or research how much comparable properties are rented for. 


Where can you get a buy-to-let mortgage?

Most banks offer buy-to-let mortgages. Make sure you contact a mortgage broker before you take out a buy-to-let mortgage as they will be able to give you professional advice and guidance. 


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