Last updated: 4th August 2020
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If you’re thinking about getting a buy to let mortgage, you’re bound to have a lot of questions. How much you can afford to borrow is probably the biggest.
Here are the kinds of things that determine how much you can borrow for a buy to let mortgage.
Buy to let mortgages tend to be interest-only. This means you pay off the interest on the loan but not the loan itself every month. So, repayments are lower than they would be if you were paying off the loan and the interest.
Your rental income has to be more than your monthly mortgage repayments. Lenders typically expect rent to be 125% of your monthly mortgage repayment. Some even go as high as 145%.
For example, if your monthly interest repayment was £500, the lender would expect a rental income of somewhere between £625 and £725 a month.
It is possible to get a repayment buy to let mortgage, where your monthly repayments go towards paying off both the loan and the interest it attracts, but they’re less common and tend to come with higher monthly repayments.
You’ll need a bigger deposit for a buy to let mortgage than you would for a standard mortgage.
For a standard mortgage you may be able to get a mortgage with a deposit worth 5% of the property value. For buy to let, you’ll need to put down at least 25%. You may even need to put down as much as 40%.
On a property worth £250,000 that works out as anywhere between £62,500 and £100,000. The more cash you put down up-front, the less you have to borrow – which tends to mean lower interest rates and lower monthly repayments.
This page shows how buy-to-let mortgages, and capital gains in particular, created the best performing investment of the past 25 years.
Most lenders will expect you to be earning an income yourself. This varies from one mortgage provider to the next, but some will expect you to have an income of at least £20,000-£25,000.
Your age also matters because it determines roughly how many years you have to pay the mortgage off. For example, if you’re too close to retirement age, you may find it more difficult to secure a buy to let mortgage.
Some lenders will only give you a buy to let mortgage if you own a home of your own, mortgaged or otherwise. They’ll want to see at least 12 months’ worth of payments without any issues too.
Our Mortgage Matcher will give you an estimate of how much you could borrow for a buy to let mortgage and how much you’d need to collect in rent each month to borrow that much.
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Here's a few other articles you may find useful.
Thinking about buy-to-let? you'll find everything you need to know right here - from investment potential to mortgage applications.
Fixed? Variable? Interest-only? Let's have a look at what you need to consider when looking at buy-to-let mortgage rates