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It is not especially hard to get a buy to let mortgage if the property’s rent covers the mortgage payment by the lender’s margin and you have a deposit of around 25%. Those two tests decide most applications. Everything else, from minimum income to age limits to the type of property, narrows the list of lenders rather than ruling you out altogether.
The difference from a residential mortgage is where the lender looks. A residential lender looks at your salary and outgoings. A buy to let lender looks first at the rent, then at you, then at the property.
What is the rental cover test?
The lender takes the monthly rent a surveyor confirms the property would achieve, calculates a mortgage payment at a notional rate the lender sets, and requires the rent to be at least 125% of that payment for a basic rate taxpayer and around 145% for a higher rate taxpayer. If the rent falls short, the lender reduces the loan until it passes, and you need more deposit to make up the difference. My buy to let stress test page shows the calculation in full.
How much deposit do you need?
Most lenders want 25%. Across my panel, one lender lends to 85% loan to value and a few to 80%, but the majority stop at 75% and that is where the widest choice sits. The rest of this post lists the other criteria, what makes a case harder, and where a first time landlord stands. The wider picture is on my buy to let mortgage hub.
The rent must cover the mortgage payment by 125% to 145% at a notional rate, and this test decides most cases
Most lenders want a 25% deposit, with one on my panel lending to 85% and a few to 80% loan to value
Minimum income where a lender has one is commonly £25,000, but several lenders have no minimum at all
What are the criteria for a buy to let mortgage?
Deposit. Usually 25% of the purchase price. On a £240,000 house that is £60,000, leaving a mortgage of £180,000. A 20% deposit is £48,000 with a loan of £192,000, and the rent then has to cover the larger loan, which is why the lower deposit options are harder to use than they look.
Rental cover. Described above. For a £180,000 interest only loan the required rent depends on the lender’s notional rate and your tax band, and the difference between a basic rate and a higher rate case can be £150 a month or more of rent on the same property.
Minimum income. Some lenders require £25,000 a year from employment or self employment, a few require more, and a growing number have no minimum provided you have some earned income and are not relying on the rent to live. Where a lender has a minimum, it usually applies to at least one applicant rather than both. The detail is in buy to let mortgage minimum income.
Age. Most lenders want applicants to be at least 21, and set a maximum age at the end of the term, commonly somewhere between 75 and 85, with a few going higher. A 60 year old wanting a 25 year term will find some lenders will not go past 80.
Credit history. Lenders look at defaults, county court judgments, missed payments and arrears. As a rule of thumb, adverse credit needs to be at least six months old and cleared, or for a small amount, and six years old is best. Some specialist lenders take more recent problems with a larger deposit.
Property type. Standard construction houses and flats in blocks of a modest height are accepted almost everywhere. Flats above shops or restaurants, ex local authority flats in high rise blocks, studio flats under a minimum floor area, houses of multiple occupation, holiday lets and non standard construction each cut the list of lenders down, sometimes to a handful.
Ownership. Buying in your own name or through a limited company changes the products available and the paperwork, and a company will be asked for a personal guarantee from the directors.
What makes a buy to let mortgage harder to get?
Low rent for the area is the most common problem. A large family house in an expensive part of Hampshire may have a yield of 3% or less, and the rent will not support a 75% loan whatever your income. Some lenders allow top slicing, where surplus personal income is used to make up a rental shortfall, but not all do and the surplus has to be real.
Relying on the rent as your only income is the second. Lenders want to see that you can carry the mortgage through a void period, and an applicant with no earned income has a much shorter list of lenders.
Recent adverse credit, a property with a short lease, a flat with cladding that has not been signed off, and a purchase from a family member at below market value each add friction. None is fatal on its own. Two or three together can be.
Timing is the last one. Applying immediately after a job change, before the first payslip in the new role exists, is the most frequent cause of delay I see on employed applications of any kind, and buy to let is no exception where the lender has a minimum income.
Where does a first time landlord stand?
A first time landlord who already owns their own home has plenty of choice. Most lenders accept them, though a few want previous letting experience for HMOs or larger loans. A first time buyer who wants a buy to let as their first property is in a smaller pool, because lenders worry the applicant will move in. Some will lend if the applicant’s own income would support the mortgage on a residential basis as well, and my buy to let for first time buyers page covers the lenders that consider it and what they ask for.
What I see in practice
The two things that stop an application most often in my cases are limited rental income and not enough deposit. Everything else, age, credit history, property type, can usually be placed somewhere across the panel. Rent that does not cover the loan at the lender’s stress rate, or a deposit that falls short of the 25% most lenders want, cannot be fixed by choosing a different lender, only by changing the numbers.
Speak to an expert
Send me the property price, the rent a local agent has quoted and your deposit, and I will tell you whether the rent supports the loan at 75% and which lenders would consider the case.
What should you check before applying for a buy to let mortgage?
Get a written rental figure from a letting agent before you offer on a property. The surveyor will form their own view, but an agent’s letter gives you a number to run the cover test against and stops you buying a property the rent cannot support.
Work out your tax band for the year of purchase, because it sets the cover ratio the lender applies. A bonus or a pay rise that tips you into higher rate tax changes the rent you need.
Look at the deposit honestly. A gifted deposit from family is accepted by most lenders with a letter confirming it is not a loan. A deposit borrowed on a credit card or a personal loan is not, and a deposit released from your own home by remortgaging is fine as long as the residential lender’s affordability check includes the new payment.
Check the property type before you fall for it. Freehold houses are the easiest. A flat above a takeaway or a studio under 30 square metres may be lettable and still unmortgageable with most of the market. How much deposit you actually need for the property you have in mind is set out in how much deposit for a buy to let mortgage.
Whether the case is easy or hard depends on the rent, the deposit, your credit history and the property, and a buy to let mortgage broker is there to match those four things to a lender before the application is made rather than after a decline. Your home may be repossessed if you do not keep up repayments on your mortgage.
Need Personal Mortgage Advice?
Every buyer’s situation is different. While this guide explains the general rules, the right mortgage for you depends on your income, deposit, credit history and future plans. If you’d like tailored advice, I can help, with 120+ lenders to choose from.
