How buy-to-let mortgages differ
Buy-to-let mortgages are assessed differently from residential mortgages — lenders focus heavily on the property's expected rental income rather than (or in addition to) your personal income, and typically require larger deposits, commonly starting from around 25%.
Rental cover calculations
Lenders generally require the expected monthly rent to exceed the mortgage payment by a set margin — often requiring rental income of 125–145% of the mortgage payment (calculated at a stress-tested interest rate, not just the actual rate you're being offered), to ensure the property remains affordable if rates rise or there are void periods.
Interest-only is common
Many buy-to-let mortgages are taken on an interest-only basis, where monthly payments cover only the interest and the capital is repaid separately at the end of the term (often through selling the property, or other funds). This keeps monthly payments lower than a repayment mortgage but means the full loan amount is still owed at the end, so a clear repayment strategy is essential.
Tax treatment has changed significantly
Mortgage interest on buy-to-let properties can no longer be deducted from rental income before calculating tax in the way it once could for individual landlords — instead, a tax credit broadly equivalent to basic-rate relief is given instead. This has reduced the after-tax profitability of buy-to-let for many higher-rate taxpayer landlords compared with the older rules, and is worth understanding (or discussing with an accountant) before investing.
Other costs to factor in
- Landlord-specific buildings insurance, and potentially rent guarantee insurance
- Letting agent fees, if you're not managing the property yourself
- Safety certificates, deposit protection scheme fees, and compliance with ever-changing landlord regulations
- Void periods between tenants, when there's no rental income but the mortgage still needs paying
Key takeaways
- Buy-to-let mortgages require larger deposits and are assessed mainly on rental income.
- Rental cover requirements are stress-tested well above the actual mortgage payment.
- Mortgage interest tax relief for individual landlords now works as a basic-rate tax credit, not a full deduction.
- Budget for letting, compliance, and void-period costs beyond the mortgage itself.