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Buy-to-let mortgages. Make the rent do the maths.

A buy-to-let lender cares about one number above all: does the rent cover the interest, with room to spare? Run the test on a real example below, then talk to a broker who knows which lenders will say yes.

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  • Lenders for first-time landlords and portfolios
  • Personal and limited company buy-to-let
  • Free first consultation
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The short answer

Buy-to-let mortgages in 30 seconds

  • Deposit: usually at least 25%, with better rates from 35% to 40%.
  • Borrowing: set mainly by the rent. Lenders want rent of 125% to 145% of the interest at a stressed rate.
  • Stamp duty: an extra 5% on the whole price for an additional home in England and Northern Ireland.
  • Tax: individual landlords get a 20% tax credit on mortgage interest, not a full deduction.
  • Structure: personal name or limited company. Get tax advice before you choose.
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The rent test

Does the rent pay the lender’s way?

Lenders take the interest at a stressed rate and ask the rent to cover it with a margin. Here is the test on a £200,000 flat let at £1,000 a month.

  • Price £200,000, 25% deposit £50,000, loan £150,000
  • Gross yield: £12,000 a year ÷ £200,000 = 6.0%
  • Stressed interest at 5.5%: £688 a month
  • 125% cover needs £859, and 145% cover needs £997

Example figures, not a quote. Stress rates and cover levels vary by lender, tax status and how long the rate is fixed.

Rent against the lender’s test

Monthly rent
£1,000
Basic-rate or company test (125%)
Passes £859
Higher-rate test (145%)
Passes £997
Largest loan this rent supports at 145%
£150,000

Stamp duty for landlords

The 5% surcharge, at four prices.

Buying a second home to let adds 5% to every band. On a £200,000 property that turns £1,500 into £11,500.

  • Normal rates plus 5% on the whole price for an additional home
  • The surcharge applies from the first pound
  • Scotland and Wales charge their own additional-dwelling rates
£150,000 £8,000
£200,000 £11,500
£250,000 £15,000
£300,000 £20,000
Stamp Duty Land Tax on an additional home in England and Northern Ireland, at HMRC rates.

What lenders check

Four things that decide a buy-to-let mortgage.

  • Deposit and loan-to-value

    Usually 25% or more. Rates tend to fall at 35% and 40% deposits.

  • Rent cover

    Rent of 125% to 145% of the stressed interest, depending on tax status and the lender.

  • You as a landlord

    Some lenders want a minimum income, existing homeownership or letting experience.

  • The property

    Flats above shops, HMOs and short lets need specialist lenders and stricter checks.

Why use a broker

Buy-to-let lenders all set their own tests.

One lender’s 145% test is another lender’s 125%. Our partner mortgage broker knows which lenders fit your tax position, deposit and property type.

  • Lenders for first-time landlords, portfolios and limited companies
  • Rent tests compared, so a shortfall doesn’t end the search
  • Any advice fee confirmed in writing before you go ahead
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FAQ

Buy-to-let questions, answered.

How much deposit do I need for a buy-to-let mortgage?

Most buy-to-let lenders want at least 25% of the price, and the best rates often need 35% to 40%. On a £200,000 property, 25% is £50,000. The deposit also has to cover the rent test: a bigger deposit means a smaller loan, which makes the rent test easier to pass.

How do lenders work out how much I can borrow for buy-to-let?

Most lenders use the rent, not your salary. They check that the monthly rent covers the interest at a stressed rate, often 5.5% or more, by a set margin. Many ask for 125% cover for basic-rate taxpayers and limited companies, and 145% for higher-rate taxpayers. Some lenders top up a shortfall with your personal income.

What is rental yield?

Gross rental yield is the yearly rent divided by the price. £1,000 a month on a £200,000 property is £12,000 a year, a 6% gross yield. Net yield takes off costs such as letting fees, insurance, repairs and empty months, and is the better guide to profit.

Do I pay extra stamp duty on a buy-to-let?

Yes. In England and Northern Ireland, buying an additional home usually means 5% on top of the normal Stamp Duty Land Tax rates, charged on the whole price. On a £200,000 buy-to-let that is £11,500 in total, against £1,500 for someone buying their only home.

Can I offset mortgage interest against rental income?

Not in full if you own the property in your own name. Since April 2020 individual landlords get a tax credit worth 20% of their mortgage interest instead of deducting it from rent. Higher-rate taxpayers can pay more tax as a result. Limited companies are taxed differently, so take advice from an accountant before you choose.

Should I buy through a limited company?

It depends on your tax rate, how many properties you plan to own and whether you need the income now. Company buy-to-let mortgages can carry slightly higher rates and fees. An accountant can compare the tax, and a broker can compare the lenders that lend to companies.

Can a first-time buyer get a buy-to-let mortgage?

Some lenders accept first-time buyers or first-time landlords, but the choice is narrower and the deposit and rent tests are usually stricter. Many lenders also want a minimum personal income. A broker knows which lenders consider first-time landlords.

The rest of your move

Homemove sorts every part of a move, and it all sits in one dashboard.

Let the rent pass the test.

A free first call, lenders compared for you and the right rent test for your tax position.

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