Mortgage blog: Everything you need to know about buy-to-let mortgages

Posted 23 May 2014 by Keith Osborne

Over the last 18 years, the buy-to-let mortgage market has enabled many thousands of investors to profit from rental property. The private rental sector now makes up 18% of households in England and buy-to-let accounts for 14% of mortgages.

And, recent analysis by Paragon shows every £1,000 invested in an average buy-to-let property in the final quarter of 1996 would have been worth £13,048 by the final quarter of 2013.

Property can be a great way to provide a nest egg for your future. So, we've put together a guide to everything you need to know about buy-to-let mortgages.

How buy-to-let mortgages work

Unlike a normal mortgage which is based on your income and outgoings, a buy-to-let mortgage is primarily based on the rental income you expect to earn from the property.

Lenders generally want the rental income - verified by a surveyor - to be 125% of your monthly interest-only mortgage payments. This will either be based on the initial pay rate for fixed and tracker deals or the lenders standard variable rate. For example, if your monthly mortgage payment is £400, the rent will normally have to be at least £500 per month.

How much you can borrow

The amount that you can borrow depends in the lender. You will generally have to put down a deposit of at least 25% although the better deals are reserved for borrowers with a deposit of 40% or more. Most lenders have a maximum lending amount and many also have rules regarding how many buy-to-let properties you are allowed to own.

Remember that buy-to-let mortgages are not regulated by the Financial Conduct Authority. This means that lenders do not have follow such strict rules on how they sell their products.

How much does a buy-to-let mortgage cost?

Buy-to-let mortgages tend to be more expensive than residential loans. At the moment, the lowest fixed rate for a residential mortgage is around 1.5% while you would pay at least 2.5% for a buy-to-let deal.

The fees associated with buy to let mortgages are also typically higher. Some deals come with a fee of 2.5% of the amount that you borrow (£5,000 on a £200,000 mortgage) while others charge a fixed fee of £999 or £1,499.

Keith Osborne, editor of, says: "It's always worthwhile comparing both headline interest rates and the fees a lender will charge. For example, for smaller loans it may pay to take a higher rate with a lower fee. It can be a good idea to consult an independent mortgage broker for advice on the right deal for you."

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