The Ultimate Guide to Buy-to-Let Mortgages

When you buy a property as an investment, you cannot fund your purchase with a normal residential mortgage. Instead, you will need a specialist buy-to-let mortgage. There are 2 main differences you must consider when comparing these mortgage types:

The first difference is, that lenders see buy-to-let mortgages as higher risk because many buyers will use the rent to make their repayments. Should a landlord have issues with rent collections or suffer from periods of inoccupancy, lenders see a risk that they will default on repayments. This is not true for most landlords, who are generally financially secure people not solely dependent on rental income.

Because of the higher risk involved, you will be required to pay a larger deposit. This is generally at least 25% of the total value of the property but depends on the lender in question. Some lenders might offer buy-to-let mortgages that only require a 20% deposit but expect to pay higher mortgage rates. To benefit from the best mortgage rates on the market some lenders might require a deposit as high as 40%. 

Acceptance of a buy-to-let mortgage is similar to a residential mortgage and depends on a variety of circumstances, including:

• if you wish to purchase the property
• if you are familiar with the risks involved with investing in property and can afford to take them on
• if you have a good credit record and do not have excessive amounts of debt, for instance on credit cards
• if you earn more than £25,000 a year. Lenders will be unlikely to approve a buy-to-let mortgage if you earn less than this
• if you are under 70/75 years old. Lenders usually have an upper threshold of 70 to 75 and will usually not lend to people older than this.

If after analysing your finances, you can afford to take on a buy-to-let mortgage then you will need to decide on the type of loan to take on. Again, there a many aspects that should be considered before choosing your product.

The amount of interest you pay back on a buy-to-let loan depends on many factors. Amongst others, these include the size of your initial loan, the rental value of your property and your financial situation. However, it will also depend enormously on the type of mortgage you take on be it a fixed-rate or variable-rate loan. Each has specific advantages and disadvantages and we will look into them below:

Discounted Variable

• These mortgages have a fixed rate set below your lender’s SRV. For instance, if your lender’s SVR is 4% and the discounted rate is fixed at -1%, you will pay an interest rate of 3%.
• However, the discounted rate will follow the SVR and you will therefore be subject to the same rises.
• The discounted rate only lasts for a certain period, typically around 2 years. After this period has expired you will be moved back to the SVR.

Tracker

• A tracker mortgage is a type of variable-rate mortgage.
• The interest rate ‘tracks’ (i.e. moves in relation to) an external interest rate. This is usually the Bank of England Base Rate, but others can be used. This makes it unlike an SVR mortgage, which has a rate set solely by your lender.
• For example, if your tracker deal is described as ‘Bank of England Base rate +1.5%’, your rate will always be 1.5% more than the rate set by the Bank of England. Thus, if the Bank of England rate is 0.5%, your tracker interest rate will be set at 2%. If the base rate were to rise by half a percentage point, your tracker would rise to 2.5%.
• Make sure you understand the rate set above by the lender before committing. Either way, the Bank of England base rate will not fluctuate as much as a lender’s SVR and it is therefore generally safer.

Now we have a firm grasp of the different types of mortgage products available and the advantages and disadvantages of each. You might be interested in what interest rates you should expect. You will need to shop around for the best rates, and we would always advise using a mortgage broker. The cost of using one will invariably save you money in the long term.

Nevertheless, we can look at the current average fixed-rate mortgages in the UK. In January 2025, the average 2-year fixed standard BTL rate was 4.43% (75% LTV). The 5-year fixed standard BTL rate was 4.24% (75% LTV) according to HSBC. Mortgage rates are constantly changing so it is important to consider all options to get the best deal at the time of securing  a mortgage. 

The amount you can borrow depends on the Interest Cover Rate (ICR), discussed earlier. Essentially, this is based on the amount of rent that you will realistically be able to earn from your investment property. You can estimate how much rent you can charge by looking into the rents of similar properties in your area. Your lender will also require verification of your property’s rental value from an independent surveyor. Therefore, it is important to buy investment property with good yields or you might not be able to borrow enough.

As mentioned earlier, lenders will typically require you to receive 125% of your monthly interest payments in rental income but this can be as high as 145%. If your provider requires your rental value to be 125% of your interest payments, then you will need to charge your tenants at least £1000 a month if your monthly interest payments are £800. Essentially, the more you can charge in rent, the higher the loan you should be eligible for.

Should you choose to sell your buy-to-let property or remortgage it, you will be required to pay off the loan. If you are on an interest-only mortgage, which is common for buy-to-let properties, you will have no equity in the property. This is because throughout owning the property you will have only paid the interest and not the actual loan.

In this situation, you will expect the property value to have increased and you can therefore pay off the loan and take the capital appreciation for yourself. Traditionally, in the UK, property prices have doubled every 10-20 years. It is therefore safe to assume that over a longer period, the property will go up in value. However, there are times like during the 2008 financial crash when property prices take a huge hit. If you were to sell the property during these downswings, then you might struggle to pay the loan back.

For this reason, you should always invest in property sensibly. At CityRise, we are here to offer you the best property investment advice and opportunities on the market. Please get in touch if you want to learn more about how property can work for you.