Buy to let mortgage rates explained

Whether you want to build a portfolio of rental properties or you have your sights set on an investment to help keep you in retirement, getting the right mortgage rate is the key to making as much money as possible on your buy to let property.

Buy to let mortgages work in a very similar way to residential mortgages, but there are a few key differences worth considering before you apply. Here we explain what you need to know.

Types of buy to let mortgages

Much like mortgages for residential properties, buy to let mortgages broadly fit into two categories, interest-only and repayment.

Buy to let mortgages however come with higher interest rates and arrangement fees compared to residential mortgages.

The vast majority of buy to let mortgages are interest-only mortgages.

The attractive thing about interest-only mortgages on buy to let properties is that you’ll get a bigger rental yield (more on that here) because your expenses as a landlord will be lower – which is something lenders like to see. Plus, if you are getting into buy to let as an investment and want to make money by selling the property once its value has risen, it makes sense to go interest-only.

Whichever type of mortgage you go for will have an impact on the interest rate you’ll be offered, along with whether you go for a fixed rate mortgage or a variable rate mortgage.

Pros and cons of fixed and variable rate mortgages

Fixed rate and variable rate mortgages both come with their own merits and pitfalls:

Fixed rate buy to let mortgages

Fixed rate mortgages offer the comfort and security of knowing exacting what you are paying each month. You are also protected from any fluctuations to interest rates.

If, however, a cheaper deal comes along you might not be able to access it without having to pay expensive exit fees.

Variable rate buy to let mortgages

Variable rate mortgages can be great while interest rates are low. If interest rates fall further so will your mortgage repayments. However, if interest rates increase in the future, which they might, you need to be prepared to see your mortgage payments rise.

In both cases, you’ll need to think about what your plan is to pay off the amount you owe be it reselling or remortgaging the property.

How does my deposit affect my buy to let mortgage rate?

Just like residential mortgages, the amount you have as a deposit impacts the rates you will be offered.

Typically, lenders will look for a minimum of 25% as a deposit. The bigger your deposit is, the lower your Loan to Value (LTV) ratio is, which can help unlock better rates.

What affects buy to let mortgage rates?

Buy to let mortgage rates can be affected by how the UK economy is performing and what the Bank of England interest rate is. Government policy can also have an impact on how competitive buy to let mortgage rates are.

Market forces also have a role. Lenders often compete with each other to try and get borrowers to choose them.

What to consider when looking at buy to let mortgage rates

As with any financial commitment you enter into, it’s important to make sure you know what you’re signing up for now, but also how that could change in the future.

If, for example, your bank offers you a good interest rate, would you be able to cope if rates were to go up in a few years? Similarly, if you are relying on rental income to repay your mortgage, do you have a back-up plan if the property is unoccupied? Our guide on ‘how to choose the right buy to let mortgage ’ takes you through the main considerations to think about.

How to get the best buy to let mortgage rate

Getting the best buy to let mortgage comes down to picking the right mortgage for your needs, which is why it’s a good idea to compare what’s out there and get advice from an expert.

You can go to the lender directly, where you’ll only see the deals they have, or go through Mojo where you’ll get a free personal recommendation from our buy to let mortgage specialists from more than 90 lenders.

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

Other articles you may find useful

Who can get a buy to let mortgage?

How to choose a buy to let mortgage

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

How does tax work on BTL mortgages?