Buy-to-Let Purchase

A buy-to-let purchase involves buying a property to rent it out to tenants. As the landlord, you collect rental income, which ideally should exceed the combined costs of property maintenance, letting agent fees (if applicable), and your monthly mortgage repayments. This surplus generates a profit from your investment.

How Buy-to-Let Mortgages Work

One of the main differences with buy-to-let (BTL) mortgages is that most of them are interest-only. This means your monthly payments will cover only the interest on the loan, not the principal amount (the capital), so you won't pay off the full loan balance during the mortgage term.

As a result, your monthly payments are typically lower. However, at the end of the term, you’ll need to either pay off the loan in full, sell the property, or remortgage. This setup allows you to generate rental income throughout the mortgage term (e.g., 25 years) and repay the mortgage by selling the property at the end.

Repayment mortgages, where both the capital and interest are paid off in monthly instalments, are less common for buy-to-let properties. With a repayment mortgage, you would need to charge higher rent to cover the increased monthly payments. The advantage is that at the end of the term, you would own the property outright and could either continue renting it out and keep all the rental income or sell it and keep the proceeds.

Another key difference between residential and buy-to-let mortgages is that the loan amount you can apply for is based on the rent you plan to charge, not your salary. So, if the property is large or in a desirable location, you can charge higher rent and potentially secure a larger mortgage.

What Deposit is Required for a Buy-to-Let Mortgage?

In general, lenders require a larger deposit for a buy-to-let mortgage compared to a residential mortgage.

You’ll likely need a deposit of at least 25%, but to secure the best mortgage rates, you may need to put down around 40%.

While it’s possible to get a buy-to-let mortgage with a smaller deposit, be prepared for higher fees and interest rates.