Buy to let mortgages

Our guide to choosing and applying for the right buy to let mortgage
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Buy to let mortgage guide

Getting a buy to let mortgage – whether it’s your first time or you’re looking to expand your property portfolio – is different from getting your garden variety mortgage.

This guide is designed to answer some of the most fundamental questions about buy to let mortgages so that you can apply with confidence, whether you’ve done this before or not.

What is a buy to let mortgage?

A buy to let mortgage is a loan you take out to buy a property and/or land that you’re going to rent out. Interest is charged on the loan.

The mortgage is secured against the value of the property, which means it can be repossessed if you don’t keep up the repayments.

Provided you know what you’re getting yourself into, there’s profit to be made investing in buy to let properties.

Once you’ve paid your monthly mortgage bill, anything left over from your rental income is potentially profit – and if the property increases in value over time you could sell and take advantage.

What’s the difference between a mortgage and a buy to let mortgage?

Interest rates tend to be higher on buy to let mortgages than on typical mortgages and typically need a bigger deposit than if you were buying a property to live in.

Buy to let mortgages are usually interest-only too, which means your monthly repayments don’t actually pay off the loan – just the interest on the loan. The idea is that you lower your outgoings so that you can maximise your profit, which you’ll see/hear referred to as rental yield.

Interest-only means your monthly mortgage bill will be lower than it would be on a repayment mortgage, but you need a plan to pay the loan off at the end – which could involve selling the property, or simply remortgaging.

If you’re paying the mortgage with your tenants’ rent money, you need a plan for periods when you don’t have any tenants in the property. There are specialist insurance policies that will cover your rent during these periods, but it’s another cost to consider.

How much does a buy to let mortgage cost?

From your deposit to Stamp Duty and other taxes, there are a number of costs that come with getting a buy to let mortgage.

Usually you’ll need a deposit worth at least 25% of the property’s value. So, if the property is worth £250,000, you’ll need to put down at least £62,500, for example.

The greater the deposit you put down, the less you’ll have to borrow and so the lower your monthly repayments are likely to be.

You’ll need to pay Stamp Duty or Land Transaction Tax on the purchase, depending on which country of the UK you’re buying in. These taxes are based on the value of the property. Stamp Duty is higher on buy-to-let purchases than your standard purchase.

You’ll pay 3% Stamp Duty on the first £125,000 of the property’s value, 5% on anything above that up to £250,000 and 8% on anything above that up to £925,000.

As a landlord you may be liable for other kinds of taxes too, such as income tax and Capital Gains Tax. It’s a good idea to get tax advice before taking out a buy to let mortgage.

Landlords also have a responsibility to their tenants to maintain the property too, so whether you do that yourself or pay an agency to manage the property, there are likely to be ongoing costs associated with your buy to let property.

How to choose a buy to let mortgage?

You could go direct to a mortgage lender and apply for a buy to let mortgage, but they’ll only recommend their own products. A mortgage broker will compare buy to let mortgages from various lenders and recommend the best one for you.

Many mortgage brokers charge a fee of around £500 for this service, but Mojo doesn’t. We can give you personal buy to let mortgage advice in around 15 minutes with no charge. We’ll then prepare, submit and manage your application for you until you get your keys.

Could I get a buy to let mortgage?

You need a deposit of at least 25%, but beyond that the criteria for a buy to let mortgage varies from one lender to the next.

Wherever you apply, you’ll need a decent credit history. Some lenders also take your income into account – especially if you’re going to be a first-time landlord. In these instances they tend to expect earnings of at least £25,000 a year.

Some lenders will only give you a buy to let mortgage if you own your own home – outright or mortgaged.

You may also find it difficult to get a buy to let mortgage if you’re above a certain age. Lenders prefer you to be no older than 70-75 by the time mortgage term ends.

Our Mortgage Matcher will tell you if you’re eligible for a buy to let mortgage in around 1 minute.

How much could I borrow for a buy to let property?

It depends on how much you’ll earn from rent on the property. A lender will expect you to earn 25-30% more in rent than what the monthly repayment costs. For example, if the monthly mortgage repayment were £500, they’d want to see rental income of £625-£650.

The size of the monthly repayment depends on how much you borrow, the amount you put down your deposit and the length of the mortgage.

That’s a roundabout way of saying: it depends – but our Mortgage Matcher can quickly give you an idea of what you could borrow.

What kinds of buy to let mortgage deals are available?

Just like a standard mortgage, there are different types of buy to let mortgage deals to choose from.

There are fixed rate deals, where you know how much your monthly repayments will be for a set number of years, variable rate mortgages, where the amount you repay each month can move up or down as the lender adjusts the rate and capped rate deals, where the repayments can change but never exceed an agreed amount.

We can help you to decide which type of buy to let mortgage deal is right for you.

Can I remortgage a buy to let property?

Yes. You can remortgage a buy to let property to get a better deal or release money from it.

For example, if your fixed rate buy to let mortgage is coming to the end of its initial period, you’ll probably be moved onto a more expensive Standard Variable Rate (SVR). You can remortgage to avoid this.

Or, let’s say you want to make some improvements to the property – perhaps so that you can increase its rental income. In that case, you could remortgage to borrow some extra cash.

We can help you find the right buy to let remortgage deal, whatever your circumstances.

We know buy to let mortgages can be complicated

But they don't have to be. We take all the confusion out of getting a buy to let mortgage. Whole of market comparison? Check. Free personalised advice? You betcha. A personal application manager to do all the boring admin? You got it.

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