What is a Buy-To-Let Mortgage and How Does It Work?

The idea of earning rental income through property ownership continues to attract investors across the UK. If you’re considering entering the rental market, understanding buy-to-let mortgages is essential. Whether you’re a first-time landlord or expanding your property portfolio, this guide will explain what these mortgages are, how they work, and how to get started.

Quick Overview

• Buy-to-let mortgages are used to purchase properties intended for rental income.
• They differ from residential mortgages in terms of deposit requirements, risk, and interest rates.
• Most buy-to-let mortgages are interest-only, which means lower monthly payments but a capital repayment due at the end of the term.
• Eligibility depends on income, credit rating, and projected rental income.
• First-time landlords can apply, but may face stricter criteria.

What is a Buy-To-Let Mortgage?

A buy-to-let mortgage is a loan specifically designed for purchasing a property to rent out to tenants. Unlike residential mortgages, these loans are assessed based on the property’s rental income potential rather than just your personal income. They often come with higher interest rates and require larger deposits, reflecting the increased risk to lenders.

So, what is a buy-to-let mortgage in simple terms? It’s a financial product that allows landlords or property investors to buy homes with the intention of letting them, not living in them. These mortgages are primarily offered on an interest-only basis, meaning you pay the interest monthly and repay the full loan amount at the end of the term.

Who Is Eligible for a Buy-To-Let Mortgage?

Eligibility criteria vary by lender, but generally include:

• You must be at least 18 years old (21 for some lenders).
• You should be a UK resident with a good credit history.
• Your annual income may need to meet a minimum threshold (commonly £25,000+).

Buy-to-let is open to first-time landlords, but the application process may involve more scrutiny. You’ll need to show you understand the responsibilities and financial obligations of managing rental property. A lender may also require a contingency plan in case the property is unoccupied for a period.

How Much Deposit Do You Need for Buy-To-Let?

Lenders usually require a deposit of 25% to 40% of the property’s value. The exact amount depends on your credit profile, income, and projected rental yield. For example, if you want to buy a £200,000 flat, expect to put down at least £50,000 as a deposit.

This higher deposit reflects the lender’s need to reduce risk. Buy-to-let investments are more vulnerable to market fluctuations and rental voids. A larger deposit also helps secure better interest rates, lowering your long-term costs.

How Much Can You Borrow?

When determining how much you can borrow, lenders assess the property’s expected rental income. A common rule is that rent should cover at least 125% to 145% of the mortgage interest payments. For example, if your monthly interest payment is £800, the expected rent must be at least £1,000–£1,160.

Some lenders may also consider your personal income—especially if the rental yield is low. This ensures you can keep up with repayments even if the property is temporarily unoccupied.

How Does a Buy-To-Let Mortgage Work?

So, how does a buy-to-let mortgage work? Most are structured as interest-only loans. You pay only the interest monthly and repay the capital in full when the mortgage term ends. This keeps monthly payments lower, freeing up more cash flow from your rental income.

However, you’ll need a strategy to repay the capital at the end—through savings, selling the property, or refinancing. Alternatively, some landlords opt for repayment mortgages, which clear both interest and capital over time, albeit with higher monthly costs.

Understanding how a buy-to-let mortgage works helps you decide the right structure for your goals and risk profile. Speak to a mortgage adviser or specialist broker before committing.

Costs Beyond the Mortgage

Owning a buy-to-let property involves more than just mortgage repayments. Key costs to consider include:

• Stamp Duty Land Tax (SDLT): You’ll pay a 3% surcharge on top of standard stamp duty rates for additional properties.
• Letting agent fees: Ranging from 8% to 15% of the monthly rent.
• Maintenance and repairs: Budget for regular upkeep and emergency fixes.
• Landlord insurance: Covers liability, loss of rent, and property damage.
• Void periods: Times when your property might be unoccupied.

These costs should be factored into your business plan and profit projections.

Switching or Remortgaging to Buy-To-Let

If you already own a residential property, you might wonder if you can switch to a buy-to-let mortgage. The answer is yes, but you’ll need to get consent from your current lender or apply for a formal buy-to-let remortgage.

Reasons to switch include wanting to let out your home, release equity, or access better interest rates. Bear in mind that switching may involve legal fees, property revaluation, and affordability reassessment.

What Kind of Insurance Do You Need?

Unlike standard home insurance, landlord insurance is tailored to cover the risks of renting out property. It typically includes:

• Building and contents cover
• Loss of rent protection
• Liability cover in case a tenant is injured

In some cases, local councils or licencing bodies may require specific coverage as part of property licencing regulations. This is a key consideration if you’re investing in houses in multiple occupation (HMOs).

Pros and Cons of Buy-To-Let

Evaluate your financial stability and long-term goals before diving in.

Are Buy-To-Let Properties Still Worth It in 2025?

With recent tax changes affecting how rental income is taxed, many landlords are asking: Is buy-to-let still worth it? Higher-rate taxpayers now face 40% tax on full profits, not just after expenses. However, setting up a limited company can help—corporation tax currently stands at just 19%.

To maximise profits, many investors are turning to short-term lets. These often yield higher nightly rates compared to traditional long-term agreements. While letting to existing tenants offers steady income, it may limit your earning potential compared to flexible short-term stays. Learn more about short-term letting here.

How can Seven Living help you?

Being a landlord often comes with a lot of paperwork and other hassles, such as managing listings, cleaning and property maintenance. That’s why, here at Seven Living, we work to minimise the stress of letting by handling everything for you. Our services allow property owners to:

• Maximise their rental return
• Experience a 100% turn-key service
• Stay in your holiday home or investment property

We can help with all aspects of managing your buy-to-let property – whether you need assistance with the listing, maintenance, pricing even with details such as guest management. If you are interested in finding out more, contact our helpful team today.